Connect America Fund, ETC Annual Reports and Certifications, Rural Broadband Experiments, 44413-44454 [2016-14506]
Download as PDF
Vol. 81
Thursday,
No. 130
July 7, 2016
Part II
Federal Communications Commission
sradovich on DSK3GDR082PROD with RULES2
47 CFR Parts 1 and 54
Connect America Fund, ETC Annual Reports and Certifications, Rural
Broadband Experiments; Final Rule
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
PO 00000
Frm 00001
Fmt 4717
Sfmt 4717
E:\FR\FM\07JYR2.SGM
07JYR2
44414
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
FEDERAL COMMUNICATIONS
COMMISSION
47 CFR Parts 1 and 54
[WC Docket Nos. 10–90, 14–58, 14–259; FCC
16–64]
Connect America Fund, ETC Annual
Reports and Certifications, Rural
Broadband Experiments
Federal Communications
Commission.
ACTION: Final rule.
AGENCY:
In this document, the Federal
Communications Commission
(Commission) adopts rules to
implement a competitive bidding
process for Phase II of the Connect
America Fund that will harness market
forces to expand broadband in targeted
rural areas. The Commission also adopts
rules to establish the framework for the
Remote Areas Fund auction to address
those areas that receive no winning bids
in the Phase II auction.
DATES: Effective August 8, 2016, except
for the amendments to §§ 1.21001(b)(6),
54.313(e)(2), 54.315, 54.316(a)(4), (b)(4)
and (5), and (c)(2), 54.804 (b) through
(d), and 54.806, which contain new or
modified information collection
requirements that will not be effective
until approved by the Office of
Management and Budget. The Federal
Communications Commission will
publish a document in the Federal
Register announcing the effective date
for those sections.
FOR FURTHER INFORMATION CONTACT:
Alexander Minard, Wireline
Competition Bureau, (202) 418–0428 or
TTY: (202) 418–0484.
SUPPLEMENTARY INFORMATION: This is a
summary of the Commission’s Report
and Order in WC Docket Nos. 10–90,
14–58, 14–259; FCC 16–64, adopted on
May 25, 2016 and released on May 26,
2016. The full text of this document is
available for public inspection during
regular business hours in the FCC
Reference Center, Room CY–A257, 445
12th Street SW., Washington, DC 20554,
or at the following Internet
address:https://apps.fcc.gov/edocs_
public/attachmatch/FCC-16-64A1.pdf.
The Further Notice of Proposed
Rulemaking (FNPRM) that was adopted
concurrently with the Report and Order
is published elsewhere in this issue of
the Federal Register.
sradovich on DSK3GDR082PROD with RULES2
SUMMARY:
I. Introduction
1. Over the last several years, the
Commission has engaged in a
modernization of its universal service
regime to support networks capable of
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
providing voice and broadband,
including developing a new forwardlooking cost model to calculate the cost
of providing service in rural and highcost areas. In 2015, 10 price cap carriers
accepted an offer of Phase II support
calculated by a cost model in exchange
for a state-level commitment to deploy
and maintain voice and broadband
service in the high-cost areas in their
respective states. With this Report and
Order (Order), the Commission now
adopts rules to implement a competitive
bidding process for Phase II of the
Connect America Fund.
2. Specifically, building on decisions
already made by the Commission, in
this Order, the Commission:
• Adopt public interest obligations
for recipients of support awarded
through the Phase II competitive
bidding process, that will be known in
advance of the auction and that will
continue for the duration of the term of
support, recognizing that competitive
bidding is likely to be more efficient if
potential bidders know what their
performance standards will be before
bids are made. In particular, the
Commission establishes four
technology-neutral tiers of bids
available for bidding with varying speed
and usage allowances, all at reasonably
comparable rates, and for each tier will
differentiate between bids that would
commit to either lower or higher
latency.
Æ The Commission’s minimum
performance tier requires that bidders
commit to provide broadband speeds of
at least 10 Mbps downstream and 1
Mbps upstream (10/1 Mbps) and offer at
least 150 gigabytes (GB) of monthly
usage.
Æ The Commission’s baseline
performance tier requires that bidders
commit to provide at least 25 Mbps
downstream and 3 Mbps upstream
(25/3 Mbps) and offer a minimum usage
allowance of 150 GB per month, or that
reflects the average usage of a majority
of fixed broadband customers, using
Measuring Broadband America data or a
similar data source, whichever is higher.
Æ The Commission’s above-baseline
performance tier requires that bidders
commit to provide at least 100 Mbps
downstream and 20 Mbps upstream
(100/20 Mbps) and offer an unlimited
monthly usage allowance.
Æ The Commission’s Gigabit
performance tier requires that bidders
commit to provide at least 1 Gigabit per
second (Gbps) downstream and 500
Mbps upstream and offer an unlimited
monthly usage allowance.
Æ For each of the four tiers, bidders
will designate one of two latency
performance levels: (1) Low latency
PO 00000
Frm 00002
Fmt 4701
Sfmt 4700
bidders will be required to meet 95
percent or more of all peak period
measurements of network round trip
latency at or below 100 milliseconds
(ms), or (2) High latency bidders will be
required to meet 95 percent or more of
all peak period measurements of
network round trip latency at or below
750 ms and, with respect to voice
performance, demonstrate a score of
four or higher using the Mean Opinion
Score (MOS).
• Adopt the same interim service
milestones for winning bidders in the
Phase II auction as for price cap carriers
that accepted Phase II model-based
support.
• Finalize the Commission’s
decisions regarding areas eligible for the
Phase II competitive bidding process.
• Establish a budget for the Phase II
competitive bidding process of $215
million in annual support.
• Provide general guidance on
auction design, with the specific details
to be determined by the Commission at
a future date in the Auction Procedures
Public Notice, after further opportunity
for comment. The Commission will use
weights to account for the different
characteristics of service offerings that
bidders propose to offer when ranking
bids. The Commission expresses its
preference for a multi-round auction
format and for setting the minimum
biddable unit as a census block group
containing any eligible census blocks.
The Commission concludes that reserve
prices will not exceed support amounts
determined by the Connect America
Cost Model (CAM).
• Adopt a two-step application
process, similar to Commission
spectrum auctions and the Mobility
Fund Phase I and Tribal Mobility Fund
Phase I auctions. In the pre-auction
short-form application, a potential
bidder will need to establish its baseline
financial and technical capabilities in
order to be eligible to bid. In the longform review process, winning bidders
will be required to provide additional
information regarding their
qualifications. They will be required to
obtain an acceptable letter of credit and
designation as an eligible
telecommunications carrier (ETC) before
funding is authorized.
• Establish a baseline forfeiture for
bidders that default before funding
authorization.
• Establish a 180-day post-auction
deadline for winning bidders to submit
proof of their ETC designation during
long-form review and forbear from the
section 214(e)(5) service area
conformance requirements.
• Adopt reporting requirements that
will enable the Commission to monitor
E:\FR\FM\07JYR2.SGM
07JYR2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
recipients’ progress in meeting their
interim deployment obligations, and a
process by which the Wireline
Competition Bureau (Bureau) or the
Wireless Telecommunications Bureau
will authorize the Universal Service
Administrative Company (USAC) to
draw on a letter of credit in the event
of performance default.
• Adopt rules to establish the
framework for the Remote Areas Fund,
which will award support through a
competitive bidding process to occur
expeditiously after conclusion of the
Phase II auction.
II. Public Interest Obligations
A. Performance Requirements
3. Discussion. Consistent with the
Commission’s previous decisions on
performance requirements and the
record in this proceeding, the
Commission now establishes
technology-neutral standards for the
Phase II auction as described below. The
Commission will accept bids for four
service tiers with varying speed and
usage allowances, and for each tier will
differentiate between bids that would
offer either lower or higher latency. The
Commission has already decided that
10/1 Mbps should not be the
Performance tier
≥10/1 Mbps ...............................................
≥25/3 Mbps ...............................................
≥100/20 Mbps ...........................................
≥1 Gbps/500 Mbps ....................................
Latency
Requirement
Low Latency .....
High Latency ....
sradovich on DSK3GDR082PROD with RULES2
Commission’s end goal for support
recipients over a 10-year term, and that
is why it adopts a variety of service tiers
for bids in the Phase II auction. The
Commission is guided by the statutory
goal in section 254 of ensuring that
consumers in rural and high-cost areas
of the country have access to advanced
telecommunications and information
services that are reasonably comparable
to those services in urban areas, at
reasonably comparable rates. The
Commission expects and encourages
participants to innovate and provide
better service over the 10-year term.
4. The following charts summarize the
Commission’s approach:
Speed
Minimum .....................................................
Baseline .....................................................
Above Baseline ..........................................
Gigabit ........................................................
≤100 ms.
≤750 ms & MOS of ≥4.
5. The tiers set forth below are
grounded in prior Commission Orders
setting performance obligations
requirements for speed and usage, as
well as latency, that together must be
met for the receipt of high-cost universal
service support, and reflect the diversity
of broadband offerings in the
marketplace today. The Commission
wants to maximize the number of
consumers served within its finite
budget. At the same time, the
Commission sees the value to
consumers in rural markets of having
access to service during the 10-year term
of support that exceeds its baseline
requirements. The Commission wants to
ensure that rural America is not left
behind, and the consumers in those
areas benefit from innovation and
advances in technology. All things
considered, the Commission values
higher speeds over lower speeds, higher
usage allowances over lower usage
allowances, and lower latency over
higher latency. The Commission also
sees the benefits to achieving its other
universal service objectives if a Phase II
service provider will be able to provide
broadband adequate to meet the needs
of the entire community, including
schools, libraries and rural health care
providers, potentially reducing the
overall cost of USF to consumers.
6. As discussed further below, all bids
will be considered simultaneously, so
that bidders that propose to meet one set
of performance standards will be
directly competing against bidders that
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
Usage allowance
≥150 GB.
≥150 GB or U.S. median, whichever is higher.
Unlimited.
Unlimited.
propose to meet other performance
standards. The Commission believes
that this approach strikes a balance by
providing sufficient granularity with
respect to the performance
characteristics of broadband offerings,
while maintaining an auction design
that will encourage a broad range of
providers to participate in the auction.
The Commission discusses its approach
to ranking these service tiers below and
seeks comment in the concurrently
adopted Further Notice on auction
procedures to assign weights to each tier
and latency combination.
7. The Commission recognizes that
some commenters have expressed
concerns that it is difficult to plan a
network deployment not knowing the
performance obligations that may exist
at the end of the 10-year term.
Competitive bidding is likely to be more
efficient if potential bidders know what
their performance standards will be
before bids are made. The Commission
finds that establishing the service
requirements now is preferable to doing
so after support has been awarded, as it
will provide more certainty for potential
bidders. Winning bidders that comply
with the performance requirements the
Commission establishes today for each
tier of service for the duration of the 10year term will be deemed in compliance
even if the Commission subsequently
establishes different standards in a later
proceeding (e.g., the standards that will
apply when it awards support through
a Phase III auction after the six-year
term of support for price cap carriers
accepting the offer of model-based
support).
8. Minimum Performance Tier. As a
minimum, the Commission will
PO 00000
Frm 00003
Fmt 4701
44415
Sfmt 4700
consider bids that will meet standards
for speed consistent with those
applicable to the price cap carriers that
accepted the offer of model-based
support. Specifically, in the Phase II
auction, the Commission will allow for
bids that offer at least 10/1 Mbps speeds
and offer at least 150 GB of monthly
usage.
9. The Commission does so in
recognition that some bidders may not
be able to meet the speed requirement
it establishes below for baseline
performance in some areas. For
example, there may be some areas
where wireline telecommunications
carriers—either incumbents or
competitive carriers—may extend fiber
closer to the end user but will only be
able to provide 10/1 Mbps service.
Providing flexibility for bidders to relax
the speed standard where necessary will
enable a broader range of providers to
participate in the Phase II competitive
bidding process.
10. The Commission is not persuaded
to further roll back the minimum speed
for Phase II to 4/1 Mbps, as WISPA and
USTelecom have suggested. The
Commission found ample basis in the
record for revising the minimum speed
requirement to 10/1 Mbps, when it did
so in December 2014, and the most
recent data indicate that a majority of
Americans subscribe to speeds today
that are higher than 10/1 Mbps.
11. The Commission recognizes that
wireless and satellite providers have
argued that a minimum usage allowance
of even 100 GB is unrealistic for
spectrum-based networks that have
capacity limitations, and that the
standards should be set at levels that do
not exclude spectrum-based services.
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44416
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
The Commission notes, however, that
winning bidders will be free to offer an
array of service plans, not all of which
would provide the minimum 150 GB
usage allowance. The 150 GB plan could
thus be one of several offerings. The
Commission merely require that bidders
must offer at least one service offering
at a reasonably comparable rate that
meets the minimum usage allowance.
12. Similarly, the Commission is not
persuaded that it should relax this
requirement to permit bidders to
provide only 50 GB of usage, as
suggested by one commenter. Winning
bidders will be receiving support that
will enable them to offer a service plan
with the required usage allowance, and
they will be free to offer other service
plans with a lower usage allowance at
a lower price, which may well prove
attractive to consumers in the
marketplace. The Commission is
requiring only that at least one offering
in Phase II funded areas meets or
exceeds all requirements.
13. Baseline Performance Tier. The
Commission now concludes that the
baseline tier for the Phase II auction will
be speeds of 25 Mbps downstream and
3 Mbps upstream. The Commission’s
decision to establish this baseline
performance standard for Phase II based
on the highest speed adopted by a
majority of fixed broadband subscribers
builds on the approach it adopted in
December 2014.
14. For usage, consistent with the
approach recently adopted for rate-ofreturn carriers electing the voluntary
path to the model, the Commission
requires bidders in this baseline tier to
offer over the course of the 10-year term
a minimum usage allowance of 150 GB
per month, or a usage allowance that
reflects the average usage of a majority
of fixed broadband customers, using
Measuring Broadband America data or a
similar data source, whichever is higher,
at a price that is reasonably comparable
to similar offerings in urban areas. The
Commission concludes that this
standard will ensure that rural
consumers will have available an
offering that enables them to utilize
their broadband connections in ways
similar to consumers in urban areas,
where fixed broadband services are
widely available, while its reasonable
comparability benchmarks will ensure
that usage allowance is provided at a
price that is reasonably comparable to
service offerings with similar usage
allowances in urban areas.
15. Above-Baseline Performance Tier.
The Commission also recognizes that in
some areas of the country, there may be
bidders willing to deploy networks that
will deliver performance that exceeds
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
its baseline requirements for the Phase
II auction. For a bid to qualify in this
tier, the bidder must commit to
deploying a network that is fully
capable of offering speeds and usage
allowances that exceed the baseline
standards that the Commission
establishes today for the Phase II
auction to all locations. Consistent with
proposals in the record, the Commission
will accept bids from entities that
propose to offer 100 Mbps downstream
and 20 Mbps upstream throughout the
10-year term and require these bidders
to offer an unlimited monthly usage
allowance.
16. Gigabit Performance Tier. Finally,
the Commission establishes a top
performance tier for areas of the country
in which there may be bidders willing
to deploy networks that will deliver
speeds that substantially exceed its
baseline speed requirements for the
Phase II auction. Specifically, the
Commission will consider bids from
entities that commit to offer 1 Gbps
downstream and 500 Mbps upstream
and an unlimited monthly usage
allowance.
17. Latency. For each tier described
above, bidders will designate one of two
latency performance levels: (1) Low
latency or (2) high latency. Providing
flexibility for bidders to designate their
latency performance level for each of
the given performance tiers set out
above will enable a broader range of
providers to participate in the Phase II
competitive bidding process.
18. Recently, the Commission adopted
a minimum latency requirement that 95
percent or more of all peak period
measurements of network round trip
latency are at or below 100 milliseconds
for rate-of-return carriers that elect the
voluntary path to model support. That
standard also applies to price cap
carriers that accepted the Phase II offer
of model-based support. The
Commission requires bidders that wish
to submit low-latency bids to meet the
same 100 millisecond latency standard.
19. However, the Commission
recognizes that some bidders may not be
able to meet that latency standard. For
example high-earth orbit satellite
providers cannot meet the latency
requirement, but may be willing to offer
higher speeds. After full consideration
of the record, the Commission now
concludes that bidders designating high
latency performance will be required to
meet a two-part standard for the latency
of both their voice and broadband
service: (1) Requirement that 95 percent
or more of all peak period
measurements of network round trip
latency are at or below 750
milliseconds, and (2) with respect to
PO 00000
Frm 00004
Fmt 4701
Sfmt 4700
voice performance, the Commission
requires high latency bidders to
demonstrate a score of four or higher
using the Mean Opinion Score (MOS),
similar to the standard that the
Commission adopted for one category of
rural broadband experiments.
20. The Commission is not persuaded
that it should eliminate altogether any
millisecond measure of latency for
Phase II support recipients. Some
parties have urged the Commission to
adopt alternative measures of service
quality for recipients of Connect
America Fund support, such as
requiring voice service to be provided
with an ‘‘R Factor’’ score at or above a
minimum threshold value, and a Web
page loading time standard. The
Commission declines to adopt an
alternative approach that would only
use a voice quality test for providers
that cannot meet the 100 ms latency
standard. The Commission finds that
the better approach is to measure
latency the same way for all providers,
but for entities submitting high latency
bids to set a higher benchmark and
require a demonstration of MOS of four
or higher.
21. The Commission rejects
arguments that a 100 ms latency
designation should apply only to
‘‘latency-sensitive traffic.’’ Low latency,
that is, shorter delays, is essential for
most network-based applications and
critical for others, such as VoIP and
other interactive and highly interactive
applications. Thus, requiring objectively
measured latency performance
standards is in line with network-based
applications requirements and
consumer-based perceptions of
acceptable performance, particularly for
voice services.
22. At the same time, the Commission
is willing to entertain bids from entities
that can only provide high latency, in
the interest of making this auction as
competitive as possible. For those
providers offering high latency services,
the Commission emphasizes the
importance of providing quality voice
services. The Commission particularly
welcomes solutions such as the
terrestrial voice service suggested by
ViaSat. While the Commission does not
adopt the MOS scoring metric as a
substitute for the milliseconds of
latency requirement, it believes it can be
used to help ensure quality voice
service performance for bids designated
high latency. Thus, as noted above, in
addition to the metrics set forth above,
the Commission requires that bidders
that exhibit high latency must be
prepared to demonstrate a MOS of four
or higher throughout the term of
support. The Commission recognizes
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
that the MOS metric is a measure of
perceived quality, and requires entities
taking advantage of this standard to be
prepared to submit testing results that
are specific to their CAF-funded areas.
Recipients must provide this level of
voice quality to all consumers in CAFfunded areas, not just to a subset of
locations.
23. Bidders in the Phase II
competitive bidding process that seek to
meet the higher latency standard will be
free to bid on all areas that are eligible
for Phase II competitive bidding; the
Commission will not limit them to
bidding on census blocks that the cost
model has determined are extremely
high-cost. The Commission does not
want to preclude the possibility,
however, of consumers in these areas
gaining access to low latency service in
the years ahead. The Commission also
would have concerns if consumers were
widely dissatisfied with the quality of
voice service associated with a double
hop call. For that reason, the
Commission reserves the option of
including such areas in the auction that
will occur shortly before the end of the
six-year term of support for the price
cap carriers that accept model-based
support (i.e., before the end of 2020), if
subscription levels in CAF-funded areas
are more than 35 percent lower than the
national average at that time. The thencurrent recipient of support as well as
other entities would be free to bid for
support to meet whatever performance
standards that will apply to that Phase
III auction. Absent a decision by the
Commission to include such areas in the
Phase III auction, however, Phase II
winning bidders that elect to provide
high-latency service will receive
support for a 10-year term.
24. The Commission concludes that
applicants seeking to deploy spectrumbased technologies that can meet the
performance requirements will be
eligible to bid in any tier. To ensure that
these bidders have the capabilities to
meet all standards, however, the
Commission will require bidders
proposing to use spectrum-based
technologies to demonstrate that they
have the proper authorizations or
licenses, if applicable, and access to
spectrum, to reach the fixed locations
within the areas for which they seek
support.
25. The Commission does not agree
with commenters who argue that setting
performance standards that could
potentially exclude certain technologies
disserves the public interest because it
conflicts with the principle of
competitive neutrality. The principle of
competitive neutrality does not
preclude the Commission from meeting
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
other reasonable regulatory objectives,
including as discussed above, the
statutory requirement to ensure
reasonably comparable service. The
adoption of these technology-neutral
tiers of performance standards, which
are designed to meet reasonable
regulatory objectives, is not
objectionable simply because some
service providers cannot meet the
standards for a particular tier.
26. By soliciting bidders that make
commitments to meet significantly
higher performance standards, the
Commission furthers the goal of
providing access to advanced
telecommunications and information
services in all regions of the nation. By
also entertaining bids from providers
meeting service tiers that the
Commission has previously established
in other contexts, it helps ensure that
services in rural and high-cost areas are
reasonably comparable to those services
provided in urban areas at reasonably
comparable rates, and that consumers in
these areas will not be left behind.
Finally, the Commission emphasizes
that to the extent there are eligible areas
where there are no bidders willing to
meet the standards for any of these tiers
of service, it intends to take further
action to ensure that those consumers
are not left behind. As discussed below,
the Commission will proceed
expeditiously to conduct a subsequent
Remote Areas Fund auction with further
relaxed standards.
B. Interim Deployment Obligations
27. Discussion. The Commission now
adopts its proposal to set the same
service milestones for recipients of
Phase II support awarded through the
competitive bidding process as those
that apply to price cap carriers that
accept a state-level commitment. The
Commission requires deployment to be
completed within six years of funding
authorization. In particular, as shown in
the chart below, the Commission
requires the entities authorized to
receive Phase II auction support to
complete construction and
commercially offer service to 40 percent
of the requisite number of locations in
a state by the end of the third year of
funding authorization, an additional 20
percent in the subsequent years, with
100 percent by the end of the sixth year.
The Commission recognizes these
interim deployment milestones may not
be appropriate for non-terrestrial
providers or providers that have already
deployed the infrastructure they intend
to use to fulfill their Phase II
obligations. The Commission seeks
further comment on this issue in the
concurrently adopted Further Notice.
PO 00000
Frm 00005
Fmt 4701
Sfmt 4700
44417
SERVICE MILESTONES FOR PHASE II
SUPPORT RECIPIENTS AWARDED
THROUGH COMPETITIVE BIDDING
Percent
Year
Year
Year
Year
Year
Year
1
2
3
4
5
6
.............................................
.............................................
.............................................
.............................................
.............................................
.............................................
**
**
40
60
80
100
28. When the Commission adopted a
10-year term for Phase II support
awarded through competitive bidding in
April 2014, it did not intend to suggest
that it also would provide those
recipients 10 years to meet their buildout obligations. Rather, the Commission
provided for a longer term in order to
provide additional support to those who
competed for such support. Given the
importance of the availability of
broadband in the 21st century, one of
the Commission’s policy goals is to
accelerate the deployment of
broadband-capable networks. Spreading
the service milestones over the entire
10-year term would slow the availability
of new broadband infrastructure in
these high-cost areas. Most winning
bidders will likely undertake projects
that are smaller in scale than the statewide commitments undertaken by price
cap carriers and so should be able to
complete construction and
commercially offer service well before
the end of the sixth year. Therefore, the
Commission does not believe it
necessary to grant additional flexibility
at this time.
C. Flexibility in Meeting Deployment
Obligations
29. Discussion. The Commission
concludes that recipients of support
through a competitive bidding process
should similarly have some flexibility in
their deployment obligations to address
unforeseeable challenges to meeting
those obligations. In adopting flexibility
in deployment obligations for price cap
carriers accepting model-based support,
the Commission recognized that the
‘‘facts on the ground’’ when they are
deploying facilities in a state may
necessitate some flexibility regarding
the number of locations. Similar issues
may be faced by recipients of support
awarded through a competitive process.
Most commenters supported providing
some flexibility in the number of
required locations.
30. The Commission finds that
requiring deployment to at least 95
percent of eligible locations is equally
appropriate for recipients of Phase II
support awarded through competitive
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44418
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
bidding. The Commission recognizes
that for these Phase II recipients, as well
as model-based support recipients,
‘‘there may be a variety of unforeseen
factors, after the initial planning stage,
that can cause significant changes as a
network is actually being deployed in
the field.’’ The Commission therefore
will require recipients of Phase II
support awarded through competitive
bidding to deploy to at least 95 percent
of the funded locations in each state
where they are receiving support. At the
end of the support term, recipients that
have deployed to at least 95 percent, but
less than 100 percent, of the number of
funded locations will be required to
refund support based on the number of
funded locations left unserved in that
state. The amount refunded will not be
based on average support, but on onehalf the average support for the top five
percent of the highest cost funded
locations nationwide.
31. The Commission notes that,
consistent with the approach it adopted
for the price cap carriers, compliance
with the deployment obligations will be
determined at the state-level for
recipients of support through the
competitive bidding process. Thus, the
Commission will not be looking at
whether 95 percent of the eligible
locations in a census block have service,
nor will it be looking at whether 95
percent of the eligible locations in a
given project within a state have service.
Regardless of how a bidder chooses to
place its bids for support, for
administrative convenience, support
will authorized on a state-level basis,
and the geographic areas in a state that
are funded will represent the service
territory for the ETC that is awarded
support through the competitive
bidding process.
32. The Commission is not persuaded
by commenters who argued it should
provide more flexibility than it provided
price cap carriers accepting modelbased support. Unlike the price cap
carriers who are required to accept or
decline the offer of model-based support
at the state level, bidders in the Phase
II competitive bidding process will be
able to bid on smaller projects. Potential
bidders are responsible for undertaking
the necessary due diligence in advance
of bidding to identify particularly
problematic census blocks when they
are preparing their bids and have the
option of not including such blocks in
their bids. Therefore, the Commission
see no reason to provide greater
leniency in deployment obligations for
recipients of support through the
competitive bidding process.
33. Finally, the Commission remains
open to the possibility of allowing Phase
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
II recipients to substitute some number
of unserved locations within partially
served census blocks for locations
within funded census blocks. In the
December 2014 Connect America Order,
80 FR 4446, January 27, 2015, the
Commission noted that all parties
potentially interested in receiving Phase
II support have an interest in building
economically efficient networks, and
those networks do not neatly align with
census blocks. The Commission will
continue to explore this issue, and
encourage all stakeholders interested in
receiving Phase II support to work
together to propose for future
Commission consideration an
administratively feasible method for
ensuring that unserved consumers in
partially served census blocks are not
left behind.
D. Accelerated Payment for Early
Deployment
34. Discussion. After further
considering the issue, the Commission
declines to adopt an accelerated
payment option for recipients of Phase
II support awarded through the
competitive bidding process. While a
few commenters supported providing an
option for accelerated payment, and the
Commission agrees with the goal of
encouraging faster deployment, it is not
persuaded that it could implement this
proposal within the annual available
budget. The Commission is not
convinced by ADTRAN’s claim that the
universal service fund should be no
worse off, because the outlays will not
increase, and could decrease slightly to
the extent the Commission discounts
the accelerated future payments to
reflect the time value of money. Even if
annual support amounts were
discounted, ADTRAN fails to recognize
the impact on the fund if a significant
number of support recipients took
advantage of an accelerated payment
option in the same year. Although
overall outlays over the 10-year term
would not increase, if the Commission
disburses an amount of Connect
America funding that significantly
exceeds its annual budget, it likely
would have to increase the contribution
factor and the burden on all ratepayers.
In adopting the high-cost budget in the
USF/ICC Transformation Order, 76 FR
73830, November 29, 2011, the
Commission explicitly sought to avoid
‘‘dramatic swings in the contribution
factor.’’ The Commission finds that the
potential risk of considerably exceeding
its budget in a single year outweighs the
benefits of encouraging early
deployment with an accelerated
payment option. Moreover, continuing
monthly payments over the full 10-year
PO 00000
Frm 00006
Fmt 4701
Sfmt 4700
term provides the Commission with a
means of addressing non-compliance by
withholding payments until noncompliance is cured, as discussed
below. The Commission notes that
recipients will have other incentives to
complete their deployment as quickly as
possible, both to begin earning revenues
from the new service offerings and to be
in a position where they are no longer
required to maintain a letter of credit, as
discussed more fully below.
III. Eligible Areas
35. In this section, the Commission
finalizes decisions regarding the areas
that will be subject to bidding in the
Phase II auction. As a general matter,
only census blocks lacking 10/1 Mbps
service from any provider will be
eligible for bidding, with two limited
exceptions. The Commission directs the
Bureau to release a preliminary list of
eligible census blocks based on the most
recent FCC Form 477 data and to
conduct a streamlined challenge process
to identify the final list of eligible
census blocks for the Phase II
competitive bidding process. The
Commission also directs the Bureau to
average costs at the census block level
when generating the list of census
blocks eligible for the Phase II
competitive bidding process.
36. One of the Commission’s
objectives is to ensure that as many
consumers as possible lacking 4/1 Mbps
Internet access service become served
through implementation of Phase II. The
Commission concludes it would not be
an efficient use of the Phase II support
to make eligible in the auction high-cost
or extremely high-cost census blocks in
the declined states where the price cap
carrier already is providing 10/1 Mbps
or better service.
A. Updating Census Block Eligibility To
Reflect More Recent Broadband and
Voice Coverage Data
37. Discussion. The coverage data
used in the Phase II cost model for the
offer of support to the price cap carriers
reflects broadband coverage as it existed
in June 2013, which now is nearly three
years old. It would not be appropriate to
place in the auction those areas that
have become served through market
forces in the intervening years. The
Commission therefore concludes that
the Commission will rely on current
Form 477 voice and broadband
deployment data to prepare a
preliminary list of census blocks that
will be eligible for the Phase II
competitive bidding process. Certified
Form 477 data that indicate an area is
or is not served will supersede the
conclusions reached in the Phase II
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
challenge process that the Bureau
conducted for the offer of model-based
support.
38. The Commission concludes that it
will conduct a limited challenge process
to ensure that support is not provided
to overbuild areas where another
provider already is providing voice and
broadband service meeting the
Commission’s requirements. The
Commission directs the Bureau to
release a preliminary list of eligible
census blocks based on June 2015 Form
477 data and to invite parties to
comment within 21 days of publication
if those areas have become served
subsequent to the June 2015 Form 477
data collection with 10/1 Mbps or
greater service, with a minimum usage
allowance of 150 GBs at a rate meeting
the Commission’s reasonable
comparability benchmark, with latency
not exceeding 100 ms.
39. The Bureau is not required to
entertain challenges from parties
seeking to establish that a block
reported as served on a certified FCC
Form 477 as of June 2015 or later is
unserved. The Phase II challenge
process was very time-consuming and
administratively burdensome for all
involved. The Commission found that it
was difficult for the incumbent provider
to prove a negative—that a competitor is
not serving an area, and it expects that
incumbents would face similar
problems with challenging Form 477
data that indicate that a competitor
serves an area. The Commission also
observes that no party was able to
demonstrate high latency by
competitors in the Phase II challenge
process, and very few providers
prevailed in a challenge exclusively
focused on a competitor’s usage/price.
40. The Commission has taken several
steps that make the deployment data it
collects through Form 477 data more
reliable than the June 2013 SBI data that
was utilized in version 4.3 of the CAM
for purposes of the offer of Phase II
support to price cap carriers. Unlike SBI
data, the submission of Form 477 data
is mandatory for filers, and filers must
certify that the data are accurate,
thereby promoting the submission of
complete and accurate data. Thus,
entities should be making timely,
accurate, and complete Form 477 filings
as required by the Commission’s rules;
to the extent providers fail to indicate
they serve a particular census block in
FCC Form 477, there is no basis for
protest if the Commission then
determines such an area is unserved for
purposes of the Phase II auction.
Moreover, whereas SBI data were
collected using varied methodologies by
the states, Form 477 data are collected
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
through a single, uniform process,
which reduces the potential for
inconsistent data from one state to the
next. And while the SBI data were
collected in pre-defined speed tiers,
Form 477 filers offering fixed broadband
service are required to report their
advertised maximum speed for each
technology they offer in each census
block and distinguish between
residential and nonresidential
broadband, thereby allowing the
Commission to more precisely
determine which speeds are available in
each census block. Finally, the use of
Form 477 data ensures consistency in
the data used to determine the existence
of voice and broadband in a given
census block.
41. Given the improvements in the
data collection, the Commission
concludes that it would not serve the
public interest to entertain challenges
from parties seeking to contest the
reported status of a block as served for
purpose of the Phase II competitive
bidding process. Conducting a more
resource-intensive challenge process
would likely delay the implementation
of the Phase II competitive bidding
process. The Commission notes that it
held the Phase II challenge process in
2014, and a number of parties took
advantage of that opportunity to correct
the SBI data. The Commission
concludes in this instance it will be
sufficient to rely on the certified FCC
Form 477 filings and solicit comment on
updated coverage through a streamlined
challenge process.
42. While the Commission concludes
that eligibility of areas for support in the
Phase II competitive bidding process
will be determined at the census block
level, this does not mean that the census
block will be the minimum geographic
unit for purposes of bidding in the
Phase II auction. As discussed below in
its discussion of auction design, the
Commission expects the minimum
biddable unit to be a census block group
containing one or more eligible census
blocks.
B. Averaging Costs at the Census Block
Level
43. Discussion. The Commission now
concludes that the CAM should no
longer calculate costs at the sub-block
level, except in very limited
circumstances. This will simplify the
administration and oversight of
compliance with Phase II obligations for
parties awarded support through the
competitive process. The Commission
therefore directs the Bureau to average
costs at the census block level when
generating the list of census blocks
eligible for the Phase II competitive
PO 00000
Frm 00007
Fmt 4701
Sfmt 4700
44419
bidding process, except in the
circumstance it describes below.
44. For purposes of ongoing
monitoring and oversight by the
Commission, the relevant state
commission, and the Tribal government,
where applicable, it now concludes that
it is preferable to require a winning
bidder to serve all of the locations in a
given census block, rather than some
subset of those locations in a given
block that are served by a given node to
the extent possible. As a practical
matter, bidders (and ultimate awardees
of funding) may not know which
locations in a given block are ‘‘funded’’
and therefore must be served, and
which are not ‘‘funded’’ and do not have
to be served. Accordingly, to simplify
this issue for all parties concerned, the
Commission directs the Bureau to
determine which census blocks are
eligible by averaging costs at the census
block level, to the extent possible, so
that if a given census block is eligible
for funding, the deployment obligation
applies to all the locations in that
census block.
45. For similar reasons, the
Commission will not include in the
Phase II auction those census blocks
that are served by multiple price cap
carriers and where at least one price cap
carrier has accepted Phase II modelbased support. It would be difficult for
bidders to formulate a bid for a partial
census block, as they would need to
distinguish between locations that will
be served by a price cap carrier that
accepted Phase II model-based support
and thus would be ineligible for Phase
II auction support, and which locations
will be served by price cap carriers that
declined the support and thus would be
eligible for Phase II auction support.
Accordingly, for administrative
simplicity, the Commission directs the
Bureau not to include such census
blocks in the list of census blocks that
are eligible for the Phase II auction.
46. The Commission also takes this
opportunity to clarify that extremely
high-cost locations that are located in
census blocks where the price cap
carrier has accepted Phase II modelbased support will not be eligible for
Phase II auction support. In concluding
that extremely high-cost areas would be
eligible for bidding the Phase II auction,
the Commission did not intend to make
eligible extremely high-cost locations
that are located within census blocks
that are already receiving Phase II
support. Rather, it intended to include
in the auction those extremely high-cost
census blocks that were not eligible for
the Phase II offer of model-based
support.
E:\FR\FM\07JYR2.SGM
07JYR2
44420
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
47. As discussed above, the
Commission has encouraged
stakeholders to propose an
administratively feasible method for
ensuring that unserved consumers in
partially served census blocks are not
left behind. The Commission is open to
addressing these relatively few cases
after it determines which areas remain
unserved after the Phase II auction, and
who the neighboring providers are.
sradovich on DSK3GDR082PROD with RULES2
C. Eligibility of Census Blocks Served by
Price Cap Carriers Offering Broadband
at 10/1 Mbps Speeds or Higher
48. Discussion. The Commission
excludes census blocks that a price cap
carrier already serves with speeds of at
least 10/1 Mbps from the Phase II
competitive bidding process. Given the
Commission’s finite budget and its
objective of targeting support to areas
that are unserved, the Commission finds
that it furthers the public interest to
exclude census blocks that are already
served by price cap carriers at speeds
that meet the Commission’s current
requirements. The Commission
acknowledges that permitting
competitive bidders to include such
census blocks in their bids could
encourage more providers to participate
in the Phase II auction. But the
Commission concludes on balance that
to allow such entities to overbuild
census blocks already served with
broadband speeds of 10/1 Mbps would
be an inefficient use of its finite budget.
While the Commission recognizes that
all locations in a census block may not
be served by the price cap carrier with
broadband at speeds of 10/1 Mbps, it
prefers at this time to focus its finite
budget on areas that lack any broadband
provider that offers broadband at speeds
that meet the Commission’s
requirements.
49. The Commission declines to
permit price cap carriers in the declined
territories to identify areas where they
do not need support to be excluded
from the Phase II competitive bidding
process. Such a process likely would
delay the implementation of the Phase
II competitive bidding process and
would unfairly place a decision of
whether an area goes to auction in the
hands of the carrier that declined the
offer of model-based support. The
Commission concludes that the public
interest is better served by distributing
Phase II auction support as soon as
possible so that unserved communities
are able to receive broadband as quickly
as possible.
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
D. Finalizing the List of Eligible Census
Blocks
50. Consistent with the foregoing
decisions, and prior Commission
decisions, the Commission directs the
Bureau to take all necessary steps to
determine the census blocks that will be
eligible for the Phase II auction. In
particular, the Bureau shall determine
which census blocks are served by
unsubsidized competitors according to
certified Form 477 data and thus
ineligible for the Phase II competitive
bidding process. The Bureau also shall
add to the list any census blocks to
which price cap carriers accepting
model-based support indicated by
December 31, 2015 that they do not
intend to deploy, and the census blocks
included in non-winning rural
broadband experiment bids submitted
in category one by entities that met the
Commission’s financial and technical
documentation submission
requirements, to the extent FCC Form
477 data indicate that such blocks are
unserved with 10/1 Mbps broadband.
To ensure that potential bidders are
aware of the potential areas in the
auction, the Commission directs the
Bureau to publish expeditiously a
preliminary list of eligible census blocks
using the June 2015 Form 477 data. The
Commission invites parties to notify the
Bureau within 21 days of publication of
this preliminary list if any of the census
blocks on the preliminary list became
served after June 30, 2015. The
Commission delegates to the Bureau the
task of conducting this streamlined
challenge process.
51. The Bureau may subsequently
update that list to the extent any
corrections are made to the June 2015
Form 477 data or to reflect more recent
Form 477 data, if publicly available. To
the extent rate-of-return carriers identify
census blocks that they will be unable
to serve before the list is finalized, they
also will be included. The Bureau shall
publish a final list of eligible census
blocks based on publicly available Form
477 data no later than three months
prior to the deadline for submission of
short-form applications for the Phase II
auction.
IV. Budget
52. Discussion. Now that the price cap
carriers have responded to the offer of
support, the Commission can establish
the budget for the Phase II auction.
Nearly $175 million in support was
declined. To that figure, the
Commission will add the nearly $35
million in support that was removed
from the offer as described above. The
Commission also adds the nearly $3
PO 00000
Frm 00008
Fmt 4701
Sfmt 4700
million associated with the served
Missouri census blocks that was
subtracted from the Phase II modelbased support amount that CenturyLink
accepted in Missouri. For simplicity, the
Commission therefore now sets the
Phase II auction budget at $215 million
in annual support (rounding up the sum
of nearly $175 million, nearly $35
million, and nearly $3 million).
V. Phase II Auction
A. Basic Guidance on Auction Process
53. Discussion. Here the Commission
provides some basic guidance on
choosing an auction design that will
further its objectives for Connect
America Phase II competitive bidding.
54. The Commission has already
adopted competitive bidding rules that
allow for the subsequent determination
of specific final auction procedures
based on additional public input during
the pre-auction process. Those
competitive bidding rules together with
the additional rules the Commission
adopts today to establish Phase II
winning bidders’ performance
obligations, eligible areas, and postauction obligations and oversight
establish the framework needed for the
Commission to develop detailed auction
procedures in the pre-auction process,
including specific procedures for
ranking bids based on bidders’
performance requirement commitments,
auction format, package bidding to
enable bidders to aggregate eligible
areas, and reserve prices. The
Commission’s decisions today are
intended to narrow the scope of issues
so that interested parties can focus
constructively on the remaining details,
while preserving its ability to make
adjustments if circumstances or the
record developed in the pre-auction
process support such changes to assure
that the auction will take place in a
timely manner and fulfill the goals it
establishes in this Order.
55. Ranking bids. The Commission
now adopts an auction design in which
bidders committing to different
performance levels will compete head to
head in the auction, with weights to
take into account its preference for
higher speeds over lower speeds, higher
usage over lower usage allowances, and
low latency over high latency. A
number of commenters support a
framework that provides an absolute
preference to bidders deploying future
proof networks, while other commenters
disagree. After consideration of the
record, the Commission is not
persuaded that one type of bid should
be processed separately from another
type, or that one type of bid should
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
automatically be selected over another,
regardless of the bid amount. Rather, all
bids will be considered simultaneously,
so that bidders that propose to meet one
set of performance standards will be
directly competing against bidders that
propose to meet other performance
standards. The Commission concludes
that the bids for entities committing to
meet significantly higher speeds and/or
usage than the baseline should be
adjusted because it sees the value to
consumers in rural markets of having
access to service during the 10-year term
of support that significantly exceeds the
Commission’s baseline requirements.
Likewise, the Commission sees value to
rural consumers of having access to
speeds and usage that meet its baseline
requirements, rather than the minimum.
The Commission would prefer, to the
extent possible, to ensure that
consumers living in high-cost areas
receive the level of universal service
that it establishes as its baseline
expectation. The Commission also
would prefer consumers having access
to low latency services over high latency
services. The Commission also notes
that when structuring the Phase II
auction, it will keep in mind the
Commission’s objective of bringing
service to as many consumers lacking 4/
1 Mbps Internet access service as
possible through the implementation of
Phase II. The Commission seeks
comment on the assignment and
specific level of the weights in the
concurrently adopted Further Notice.
56. Bids will be scored relative to the
reserve price for the areas subject to the
bid with lower bids selected first, taking
into accounts the weights, on which the
Commission seeks comment in the
concurrently adopted Further Notice.
The Commission concludes that this
approach is more likely to ensure
winning bidders across a wide range of
states than selecting bids based on the
dollar per location, which could result
in support disproportionately flowing to
those states where the cost to serve per
location is, relatively speaking, lower
than other states. The Commission
declines to adopt an approach that
would select bids on a dollar per
location basis.
57. Appropriate Phase II Funding
Across States. The Commission
recognizes the concerns that have been
raised by states about the need for an
efficient and equitable allocation of
Phase II funds, particularly for those
states in which a substantial amount of
the offer of Phase II support was
declined. That an incumbent carriers
declined the offer of support does not
diminish its universal service obligation
to connect consumers in areas that
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
would have been reached had the offer
been accepted and to provide sufficient
universal service funds to do so.
Accordingly, one of the Commission’s
objectives is to address these concerns.
The Commission seeks comment on
how best to design the Phase II auction
in the concurrently adopted Further
Notice. In addition, the Commission
recognizes and applauds state-based
initiatives to advance broadband
deployment. In the concurrently
adopted Further Notice, the
Commission also seeks comment on
how best to coordinate with such
initiatives to achieve its universal
service goals.
58. Tribal lands. The Commission
recognizes its historic relationship with
federally recognized Tribal Nations, has
a longstanding policy of promoting
Tribal self-sufficiency and economic
development, and has developed a
record of helping ensure that Tribal
Nations and their members obtain
access to communications services.
Telecommunications deployment on
Tribal lands has historically been poor
due to the distinct challenges in
bringing connectivity to these areas. The
Commission has observed that
communities on Tribal lands have
historically had less access to
telecommunications services than any
other segment of the population, and
that greater financial support therefore
may be needed in order to ensure the
availability of broadband on Tribal
lands. Accordingly, the Commission
seeks to adopt mechanisms to advance
broadband deployment on Tribal lands.
The Commission seeks comment in the
concurrently adopted Further Notice on
measures that it could take in the Phase
II auction to further that objective.
59. Auction format for collecting bids.
The record is mixed on whether to
conduct a single or multi-round bid
auction. USTelecom, WISPA, and UTC
propose a multiple-round format, while
ACA urges a single-round sealed bid
auction. The Commission prefers a
multi-round auction format for the
Phase II auction, but it has not settled
on the specific details of such an
auction format. The Commission notes
that when adopting the rules for the
Mobility Fund Phase I and Tribal
Mobility Fund Phase I auctions in the
USF/ICC Transformation Order, the
Commission observed that the question
of whether to conduct multiple rounds
of bidding is typically resolved in the
auction procedures process. Similarly,
here, the specific auction design details
will be adopted in a future Auction
Procedures Public Notice, after the
opportunity for further comment. Based
on the information currently available to
PO 00000
Frm 00009
Fmt 4701
Sfmt 4700
44421
the Commission, the Commission
expects that a multiple-round bid
auction would enable bidders, better
than a single-round bid auction, to make
adjustments in their bidding strategies
to facilitate a viable aggregation of
geographic areas in which to construct
networks and enable competition to
drive down support amounts.
60. Minimum geographic area for
bidding. The Commission expects that
the minimum geographic area for
bidding will be a census block group
containing one or more eligible census
blocks, although it reserves the right to
select census tracts when it finalizes the
auction design if necessary to limit the
number of discrete biddable units. The
Commission concludes that defining
bidding units based on censusdetermined areas is preferable to an
approach that is grounded in the
network topology of a particular type of
service provider. The Commission
concludes generally that it is desirable
to ensure that all interested bidders,
including small entities, have flexibility
to design a network that matches their
business model and the technologies
they intend to use. The Commission is
not persuaded that adopting a larger
geographic unit, such as a county,
would be the appropriate minimum unit
for purposes of bidding. Such an
approach could preclude entities that
intend to construct a smaller network or
that intend to bid to expand their
existing networks. The Commission also
expects that as the size of the minimum
geographic unit increases, the more
challenges providers may face in putting
together a bidding strategy that aligns
with their intended network
construction or expansion.
61. Reserve prices. The Commission
will use the CAM to set reserve prices
for the Phase II auction. The reserve
price for a minimum biddable unit will
be no greater than the CAM-calculated
support amount for that area, with a cap
in the amount of support per location
provided to extremely high cost census
blocks. The record supports the
Commission’s proposal to utilize the
CAM to establish reserve prices,
although some commenters suggest that
the reserve price should be higher. For
example, ITTA argues that the reserve
price should be set based on a modelderived amount plus an additional
percentage because the cost of
deploying is likely to be more where the
price cap carrier did not elect the
statewide commitment. The
Commission’s experience with the rural
broadband experiments, however,
indicates that there are providers
willing to deploy broadband for support
amounts less than the model-based
E:\FR\FM\07JYR2.SGM
07JYR2
44422
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
amount. As with the auction design, the
specific reserve prices will be adopted
in a future Auction Procedures Public
Notice, after the opportunity for further
comment.
sradovich on DSK3GDR082PROD with RULES2
B. Application Process
62. Discussion. Consistent with the
Commission’s approach in Mobility
Fund Phase I and Tribal Mobility Fund
Phase I, the Commission adopts a twostage application filing process for
participants in the Phase II competitive
bidding process. Specifically, in the preauction ‘‘short-form’’ application, a
potential bidder will need to establish
its eligibility to participate, providing,
among other things, basic ownership
information and certifying to its
qualifications to receive support. After
the auction, the Commission would
conduct a more extensive review of the
winning bidders’ qualifications to
receive support through ‘‘long-form’’
applications. Such an approach
balances the need to collect essential
information with administrative
efficiency, and will provide the
Commission with assurance that
interested entities are qualified to meet
the terms and conditions of the Phase II
competitive bidding process if awarded
support. The Commission notes that
each potential bidder has the sole
responsibility to perform its due
diligence research and analysis before
proceeding to participate in the Phase II
auction.
63. Once the long-form application
has been approved, a public notice will
be released announcing that the
winning bidder is ready to be
authorized. At that time, the winning
bidder will be required to submit,
within a specified number of days, at
least one letter of credit and an opinion
letter from counsel that meets the
Commission’s requirements as
described below. After those documents
are approved, a public notice will be
released authorizing the winning bidder
to begin receiving Phase II auction
support.
64. Below, the Commission discusses
the requirements it adopts for the shortform and the long-form applications for
the Phase II competitive bidding
process. Consistent with the approach
the Commission took for the rural
broadband experiments last year, it
directs the Wireline Competition Bureau
and the Wireless Telecommunications
Bureau (Bureaus) to adopt the format
and deadlines for the submission of
documentation for the short-form and
long-form applications, that are
consistent with the Commission’s
universal service competitive bidding
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
rules and Part 54 of the Commission’s
rules.
1. Short-Form Application Process
65. Discussion. The Commission
requires all applicants for the Phase II
competitive bidding process to provide
basic information in their short-form
applications that will enable the
Commission to review each application
to assess before an entity commits time
and resources to participating in the
auction whether the applicant is eligible
to participate in the auction. In addition
to making the financial and technical
certification adopted in the April 2014
Connect America Order, 79 FR 39164,
July 9, 2014, the Commission’s
universal service competitive bidding
rules will apply so that applicants will
be required to provide information that
will establish their identity, including
disclosing parties with ownership
interests and any agreements the
applicant may have relating to the
support to be sought through the Phase
II competitive bidding process.
66. The Commission will also require
all applicants to indicate the type of
bids that they plan to make and describe
the technology or technologies that will
be used to provide service for each bid.
Applicants will also be required to
submit with their short-form
applications any information or
documentation required to establish
their eligibility for any bidding weights
or preferences that the Commission
ultimately adopts. To the extent that an
applicant plans to use spectrum to offer
its voice and broadband services, it
must disclose whether it currently holds
licenses for or leases spectrum. The
applicant must demonstrate it has the
proper authorizations, if applicable, and
access to operate on the spectrum it
intends to use, and that the spectrum
resources will be sufficient to cover
peak network usage and meet the
minimum performance requirements to
serve all of the fixed locations in eligible
areas. Moreover, all applicants will be
required to certify that they will retain
their access to the spectrum for at least
10 years from the date of the funding
authorization.
67. The Commission does not expect
that these requirements will impose an
unreasonable burden on potential
bidders. The Commission had similar
requirements for bidders in the rural
broadband experiments, and it is not
aware of any applicants having
difficulty providing such baseline
information. The Commission
anticipates that as they prepare to
participate in the auction, applicants
will already have firm plans for where
they will bid and the technologies they
PO 00000
Frm 00010
Fmt 4701
Sfmt 4700
will use to provide service to the areas
for which they will bid. Unlike the
applicants participating in the Mobility
Fund auctions, participants will likely
be proposing to use a wide variety of
technologies to provide service meeting
the Commission’s requirements.
Because not all participants will have
ETC designations to provide service in
their relevant service areas, it will be
useful for the Commission to have some
insight into the types of technologies
that bidders intend to use to meet their
obligations prior to the auction. The
project descriptions are intended to
provide the Commission with some
assurance that the applicant has thought
through how it intends to provision
service if awarded support.
68. To provide additional assurance to
the Commission that the entities that
intend to bid in the auction have some
experience operating networks or are
otherwise financially qualified, it adopts
several alternative prequalification
requirements. First, the Commission
adopts a requirement that applicants
certify in their short-form application
that they have provided voice,
broadband, and/or electric distribution
or transmission services for at least two
years and specify the number of years
they have been operating, or they are the
wholly-owned subsidiary of an entity
that meets these requirements.
Applicants that have provided voice or
broadband services must also certify
that they have filed FCC Form 477s as
required during that time period.
Recognizing the electric utilities also
have significant experience building
and operating networks, the
Commission also will accept
certifications from entities that have
provided electric distribution or
transmission services for at least two
years (or their wholly-owned
subsidiaries). Applicants that have
operated only an electric distribution or
transmission network must submit
qualified operating or financial reports
for the relevant time period that they
have filed with the relevant financial
institution along with a certification that
the submission is a true and accurate
copy of the forms that were submitted
to the relevant financial institution. The
Commission will accept the Rural
Utilities Service (RUS) Form 7,
Financial and Operating Report Electric
Distribution; the RUS Form 12,
Financial and Operating Report Electric
Power Supply; the National Rural
Utilities Cooperative Finance
Corporation (CFC) Form 7, Financial
and Statistical Report; the CFC Form 12,
Operating Report; or the CoBank Form
7; or the functional replacement of one
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
of these reports. The Commission
concludes that if an entity can certify
that it has provided voice, broadband,
and/or electric distribution or
transmission services for at least two
years or that it is a wholly-owned
subsidiary of such an entity, that will
provide the Commission with sufficient
assurance before the auction that an
entity has at a minimum level
demonstrated that it has the ability to
build and maintain a network.
69. Entities that meet the foregoing
requirements will also submit audited
financial statements from the prior fiscal
year, including balance sheets, net
income and cash flow, that have been
audited by an independent certified
public accountant with their short-form
application. The Commission is not
persuaded that it should permit
applicants to submit reviewed financial
statements in lieu of audited financial
statements. While the Commission
acknowledges that it collects in the
section 54.313 annual report reviewed
financial statements from privately held
rate-of-return ETCs that are not RUS
borrowers and are not audited in the
normal course of business, the
Commission concludes that the better
approach for the Phase II auction is to
require a financial audit. A financial
review is a less fulsome review of an
entity’s financial health because it does
not generally require the auditor to
develop a detailed understanding of the
internal controls environment and
conduct more in-depth testing of
individual transactions posted to the
general ledger. The need to ensure that
every Phase II auction recipient is in
good financial health is critical.
Authorized Phase II recipients will be
required to take on obligations with
defined timelines, so it is important that
the Commission has insight into an
entity’s financial health to assess its
ability to meet such obligations if
awarded support. The Commission
concludes that the additional cost of
obtaining audited financial statements is
outweighed by the importance of
assuring the financial health of Phase II
auction recipients.
70. However, the Commission
concludes that to the extent an entity
that otherwise meets these eligibility
requirements does not already obtain an
audit of its financial statements in the
ordinary course of business, the
Commission will permit that entity to
wait until after it is announced as a
winning bidder to submit audited
financial statements. The Commission
will require such entities that do not
already have audited financial
statements to certify that they will
submit the prior fiscal year’s audited
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
financial statements by the deadline
during the long-form application
process. The Commission acknowledges
that some potential bidders, particularly
small entities, may be reluctant to bid in
the Phase II auction because they do not
want to pay the upfront costs of
obtaining audited financial statements
prior to finding out if they are winning
bidders. Because such entities will be
required to demonstrate that they have
provided a voice, broadband, or electric
distribution or transmission service for
two years, the Commission concludes
that this will give it reasonable
assurance of an entity’s financial health
for permitting that entity to participate
in the auction. The Commission
concludes that on balance, its interest in
maximizing participation in the Phase II
auction outweighs the potential risk of
qualifying an experienced entity to
participate in the Phase II auction
without reviewing that bidder’s audited
financial statements, particularly given
that it will have the opportunity to
scrutinize the bidder’s audited financial
statements at the long-form application
stage before authorizing that entity to
begin receiving support.
71. The Commission requires winning
bidders that take advantage of this
option to submit their audited financials
no later than the deadline for submitting
their proof of ETC designation (which is
within 180 days of public notice
announcing winning bidders). The
Commission concludes that requiring
winning bidders to submit their audited
financials within the same timeframe as
the ETC designations will help prevent
unreasonable delays in authorizing
Phase II auction support so that winning
bidders can begin deploying broadband
to unserved consumers. The
Commission expects that bidders will
take steps to prepare for an audit once
they have submitted their short-form
application so that they can
immediately start the process upon
being named a winning bidder. If the
audit process takes longer than 180
days, winning bidders will have the
option of seeking a waiver of this
deadline. In considering such waiver
requests, the Commission directs the
Bureau to determine whether an entity
demonstrated in its waiver petition that
it took steps to prepare for an audit prior
to being named a winning bidder and
that it took immediate steps to obtain an
audit after being announced as a
winning bidder.
72. The Commission concludes that it
is appropriate to adopt a base forfeiture
of $50,000 for any entity that certifies in
its short-form application that it will
submit audited financials in its longform application, but then ultimately
PO 00000
Frm 00011
Fmt 4701
Sfmt 4700
44423
defaults by failing to submit audited
financial statements as required. Such
forfeiture would also be subject to
adjustment upward or downward as
appropriate based on the criteria set
forth in the Commission’s forfeiture
guidelines. The Commission finds that
imposing such a forfeiture will create an
incentive for bidders to certify truthfully
in their short-form applications that
they will obtain audited financial
statements if announced as a winning
bidder and will also create an incentive
for winning bidders to actually go out
and obtain those audited financial
statements rather than default.
73. The Commission is not persuaded
that it should adopt the alternative
proposals suggested by ACA and WISPA
including (1) requiring entities that are
not audited in the ordinary course of
business to make an upfront payment or
deposit of $25,000 or (2) imposing a
maximum forfeiture of $25,000 if an
entity does not submit its audited
financial statements as required. First,
the Commission concludes that
managing and tracking escrow
arrangements would be too
administratively burdensome and could
potentially delay the auction. Second,
the Commission finds that imposing a
$25,000 upfront payment or maximum
forfeiture would permit an entity to
conduct a cost-benefit analysis that
could encourage gaming. For example,
an entity may decide it would be willing
to pay $25,000 if it could preclude
others from being winning bidders in
certain areas and then default, or an
entity may decide it is willing to pay
$25,000 to default if it is ultimately
unhappy with its winning bid. Instead,
the Commission concludes that
adopting a $50,000 base forfeiture rather
than a maximum forfeiture will make it
more difficult for an entity to perform
such a strict cost-benefit analysis
because the forfeiture may be increased
if it is determined that such gaming has
taken place. According to some
commenters, the costs of a financial
statement audit can vary and generally
start at $25,000. The Commission finds
that adopting a base forfeiture of
$50,000 rather than $25,000 will further
reduce the incentives for gaming. The
Commission also concludes a base
forfeiture of $50,000 is large enough to
create an incentive for bidders take their
obligation to get audited financial
statements seriously given that it will be
relying upon the winning bidders’
certifications in the short-form
application in permitting those bidders
to participate in the Phase II auction.
74. Recognizing that the foregoing
requirements would preclude from
participating in the Phase II auction
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44424
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
entities that have less than two years of
experience operating a voice, broadband
and/or electric distribution or
transmission network, the Commission
adopts an alternative pathway for those
entities to be deemed qualified to bid in
the auction. If an interested bidder
cannot make the above certification that
it has filed FCC Form 477 data as a
voice or broadband provider for the
previous two years or the identified
alternative operating or financial forms
for electric distribution or transmission
providers, it may instead submit (1)
audited financial statements for that
entity from the three most recent
consecutive fiscal years, including
balance sheets, net income, and cash
flow, and (2) a letter of interest from a
qualified bank with terms acceptable to
the Commission that the bank would
provide a letter of credit to the bidder
if the bidder were selected for bids of a
certain dollar magnitude.
75. For the latter group of potential
bidders, the Commission concludes that
its interest in having a level of insight
into the financial health of a potential
Phase II auction bidder over a longer
period of time is a necessary
prequalification to bid, particularly
because this subset of bidders will not
able to demonstrate that they have
operated and maintained a voice,
broadband and/or electric distribution
or transmission network for at least two
years.
76. The Commission also expects that
a letter of interest from the bank will
provide the Commission with an
independent basis for some additional
assurance regarding the financial status
of the entity. The Commission does not
anticipate that this requirement will be
onerous. The Commission expects that
interested bidders will already be
considering which banks they will use
to meet the letter of credit requirement
described below, and that they will have
to find a bank that will be willing to
issue them a letter of credit in order to
ultimately be authorized to begin
receiving support. But the Commission
cautions potential bidders that it will
carefully scrutinize such letters and
reserve the right not to allow such
applicants to bid if the letter of interest
is too vague to assess the likelihood of
a future bank commitment.
77. The Commission recognizes that
by adopting these requirements, it is
potentially precluding interested
bidders that have not been in operation
long enough to meet these requirements
or that are unable to meet these
requirements for other reasons. By
adopting alternative types of prequalification requirements, the
Commission will implement a more
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
narrowly tailored approach that
balances maximizing participation in
the auction with furthering the statutory
principles of providing access to
advanced services to all regions in the
county and ensuring that those living in
rural, insular and high-cost areas have
access to reasonably comparable
services. As stewards of the public’s
funding, it is the Commission’s
responsibility to implement safeguards
to ensure that these funds are being
used efficiently and effectively, and to
protect consumers in rural and high-cost
areas against being stranded without a
service provider in the event a winning
bidder defaults when another qualified
competing bidder could have won the
support instead.
78. Finally, the Commission will also
require interested bidders to identify in
their short-form applications if they
have already been designated as ETCs in
the areas they intend to bid. Consistent
with the Commission’s decision to
permit bidders to wait until they have
been announced as winning bidders to
obtain their ETC designation, interested
bidders will also be required to certify
in their short-form applications that
they acknowledge they must be
designated as an ETC for the areas in
which they will receive Phase II support
before they are authorized to begin
receiving such support.
2. Post-Auction Long-Form Application
Process
79. Discussion. Building on lessons
learned from Mobility Fund Phase I,
Tribal Mobility Fund Phase I, and the
rural broadband experiments, the
Commission now adopts a number of
requirements for the long-form and postauction review process that will apply
generally to recipients of Phase II and
Remote Areas Fund support.
a. Financial and Technical
Requirements
80. Like the Mobility Fund Phase I
and Tribal Mobility Fund Phase I
auctions, the Commission will require
that winning bidders submit a selfcertification regarding their financial
and technical qualifications with their
long-form applications. They must also
submit a certification that specifies that
they will be able to meet all of the
applicable public interest obligations for
the relevant tiers, including the
requirement that they offer service at
rates that are equal or lower to the
Commission’s reasonable comparability
benchmarks for fixed wireline services
offered in urban areas. Due to the
varying types of technologies that
entities may use to fulfill their Phase II
competitive bidding process obligations,
PO 00000
Frm 00012
Fmt 4701
Sfmt 4700
the Commission finds that it is also
reasonable to require winning bidders to
submit a description of the technology
and system design they intend to use to
deliver voice and broadband service,
including a network diagram which
must be certified by a professional
engineer. The professional engineer
must certify that the network is capable
of delivering, to at least 95 percent of
the required number of locations in each
relevant state, voice and broadband
service that meets the requisite
performance requirements. There must
be sufficient capacity to meet customer
demand at or above the prescribed
levels during peak usage periods.
Entities proposing to use wireless
technologies also must provide a
description of their spectrum access in
the areas for which they seek support
and demonstrate that they have the
required licenses to use that spectrum if
applicable. This documentation will
enable Commission staff to have
assurance from a licensed engineer that
the proposed network will be able to
fulfill the service obligations to which
the bidders will have to commit. The
Commission reminds potential
applicants that filing deadlines will be
strictly enforced, and that bidders
should not presume that they may
obtain a waiver absent extraordinary
circumstances.
81. The Commission notes that it
required provisionally selected bidders
in the rural broadband experiments to
submit similar technical documentation,
and the vast majority of provisionally
selected bidders in the rural broadband
experiments were able to meet these
requirements. Similarly, the
Commission is aware that RUS requires
loan applicants to submit detailed
network information as part of its
application process. The Commission
expects that potential bidders for the
Phase II competitive bidding process
will need to have already developed a
network plan when making a decision
about whether to participate in the
auction. Accordingly, on balance the
Commission concludes that its interest
in assessing, before an entity is
authorized to receive support, whether
that entity is likely able to fulfill Phase
II obligations outweighs any potential
burdens this requirement may impose
on bidders.
82. Similar to the requirements for
Mobility Fund Phase I and Tribal
Mobility Fund Phase I, the Commission
will require that winning bidders certify
that they have available funds for all
project costs that will exceed the
amount of support that will be received
from the Phase II auction authorization
for the first two years of their support
E:\FR\FM\07JYR2.SGM
07JYR2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
sradovich on DSK3GDR082PROD with RULES2
term and that they will comply with
program requirements, including service
milestones. The Commission anticipates
that many bidders will need to obtain a
loan or rely upon other sources of
funding to cover the cost of building the
network, with the ongoing support used
to repay those construction loans. It
therefore is imperative that winning
bidders have a well-developed plan
regarding financing for construction
upon which they are ready to execute
once the auction closes. Unlike Mobility
Fund Phase I, where one time support
was disbursed in conjunction with
meeting deployment milestones, Phase
II support will be provided over a 10year period. Therefore, the Commission
will also require that winning bidders
describe in their long-form application
how the required construction will be
funded and include financial
projections that demonstrate that they
can cover the necessary debt service
payments over the life of the loan. The
Commission also expects that prior to
issuing a letter of credit, an issuing bank
will be performing its own financial
review of the winning bidder, which
will provide an added assurance that it
is financially qualified. And, as noted
above, prior to funding authorization,
winning bidders that are not required to
submit audited financial statements in
the short-form application will be
required to submit the prior fiscal year’s
financial statements that have been
audited by an independent certified
public accountant.
83. Finally, as discussed more fully
below, in the Phase II competitive
bidding process, participants will be
subject to a defined forfeiture if they fail
to meet within defined time periods the
Commission’s requirements to be
authorized to receive support. The
Commission expects that subjecting
bidders to such a forfeiture payment if
they are unable to get a letter of credit
or meet the Commission’s other
requirements will underscore the
requirement that bidders must do their
own due diligence about their financial
capability to meet their obligations
before they participate in the Phase II
competitive bidding process.
b. Letters of Credit
84. Discussion. The Commission
adopts a letter of credit requirement for
all winning bidders. In the long-form
application filing, it will require each
winning bidder to submit a letter from
a bank as described below committing
to issue a letter of credit. The winning
bidder will be required to have its letter
of credit in place before it is authorized
to receive support. The Commission’s
decision to require recipients to obtain
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
a letter of credit is consistent with the
requirements the Commission has
adopted for other competitive bidding
processes it has conducted to distribute
Connect America funds, where both
existing providers and new entrants
were required to obtain letters of credit.
In response to what the Commission
learned in the rural broadband
experiments, however, it makes some
adjustments to these requirements in an
effort to reduce some of the cost
associated with obtaining a letter of
credit.
85. In the USF/ICC Transformation
Order and in the Rural Broadband
Experiments Order, 79 FR 45705,
August 6, 2014, the Commission
explained why letters of credit are an
effective means for accomplishing its
role as stewards of the public’s funds by
securing the Commission’s financial
commitment to provide Connect
America support in the auction context.
The Commission also explained why it
did not adopt other approaches
suggested in the record, such as relying
on its existing accountability measures
or adopting alternative methods of
securing Connect America funds, for
example performance or construction
bonds, field inspections, or denials of
certification. The Commission
concludes that the same rationale
applies here. Letters of credit permit the
Commission to immediately reclaim
support that has been provided in the
event the recipient is not furthering the
objectives of universal service by
complying with the Commission’s rules
or requirements. They also have the
added advantage of minimizing the
possibility that the support becomes
property of a recipient’s bankruptcy
estate for an extended period of time,
thereby preventing the funds from being
used promptly to accomplish the
Commission’s goals. The Commission
finds that commenters that have
renewed requests for alternatives based
on their experience with the rural
broadband experiments, such as
requiring a performance bond, placing
money in escrow, or submitting
financial statements in lieu of a letter of
credit or considering an entity’s history
of receiving high-cost support or
performance, have not demonstrated
that their suggested alternatives offer the
same level of protection of ratepayers’
contributions to the universal service
fund.
86. Additionally, the Commission
reminds bidders to become familiar
with the letter of credit requirements it
adopts below and consider potential
issuing banks in a timely fashion. To the
extent that a bidder is the recipient of
a loan or grant from RUS, it should
PO 00000
Frm 00013
Fmt 4701
Sfmt 4700
44425
consult with RUS regarding the need to
obtain a letter of credit if it is authorized
to receive support before it submits a
short-form application. The Commission
notes that RUS’ regulations generally
require that recipients of RUS support
obtain a first lien on the assets that are
secured by certain broadband and
telecommunications loan programs. If a
bank determines that it will need a first
lien on an entity’s assets as collateral for
issuing a letter of credit, RUS and that
bank will need to negotiate acceptable
arrangements, such as an intercreditor
agreement with that bank to share RUS’
first lien status. RUS has set forth a
number of standards that an
intercreditor agreement will have to
meet including having the bank impose
specific obligations on the Phase II
auction recipient, in order for RUS to
sign on to an intercreditor agreement.
To the extent required, it is in the best
interest of entities to contact RUS and
become familiar with those standards as
soon as possible. In the event that the
bidder’s chosen issuing bank requires a
first lien to issue a letter of credit, the
bidder should ensure that it can comply
with the additional obligations and that
the issuing bank will be able to agree to
those terms by the time the bidder will
be required to submit a letter of credit
commitment letter as described below.
87. Requirements for Letters of Credit.
Once the Commission has conducted its
post-auction financial and technical
review, it will require winning bidders
to secure an irrevocable stand-by letter
of credit before support will be
authorized for disbursement. For each
state which they are awarded support,
winning bidders must submit a letter of
credit or multiple letters of credit that
cover all of the bids in that state. The
letter of credit must be issued in
substantially the same form as set forth
in the model letter of credit provided in
Appendix B of this Order, by a bank that
is acceptable to the Commission, as
described in more detail below. If an
entity fails to meet the required service
milestones after it begins receiving
support, then fails to cure within the
requisite time period, and is unable to
repay the support that is associated with
its default in a timely manner, the
Bureau will issue a letter evidencing the
failure and declaring a default.
88. In response to concerns raised
about the cost of maintaining a letter of
credit for the entire support period, the
Commission will require that the letter
of credit only remain open until the
recipient has certified that it has
deployed broadband and voice service
meeting the Commission’s requirements
to 100 percent of the required number
of locations, and USAC has validated
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44426
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
that the entity has fully deployed its
network. The Commission concludes
that such an approach will help
alleviate the costs of obtaining a letter
of credit, particularly for entities that
are able to build out their networks
faster than the six year build-out period,
while still protecting the Commission’s
ability to recover the funds in the event
that the entity is not building out its
network as required. This approach is
consistent with the approach used for
Mobility Fund Phase I and Tribal
Mobility Fund Phase I, where an entity
is required to maintain a letter of credit
valued at the support that had been
disbursed until the Commission verifies
that the build-out has been completed.
89. The Commission does not adopt
the proposals that would reduce the
amount of the letter of credit to cover
only the support that is disbursed for
the first two years unless an entity fails
to meet the first service milestone or
that would cover only the support that
is disbursed in the coming year. Both of
these approaches would not permit the
Commission to recover a significant
portion of the public’s funds that are
disbursed to an entity in the event that
the entity is not using the support for its
intended purposes. The Commission
recognizes that some entities may
continue to operate partially-built
networks even in the event of a default.
However, as described below, the
Commission will only authorize USAC
to draw on the letter of credit for the
entire amount of the letter of credit if
the entity does not repay the
Commission for the support associated
with its compliance gap. If the entity
fails to pay this support amount, the
Commission concludes that the risk that
the entity will be unable to continue to
serve its customers or may go into
bankruptcy is more likely, and thus it is
necessary to ensure that the
Commission can recover the entire
amount of support that it has disbursed.
90. Letter of Credit Opinion Letter.
Consistent with the Commission’s
requirements for Mobility Fund Phase I,
Tribal Mobility Fund Phase I, and the
rural broadband experiments, winning
bidders must also submit with their
letter(s) of credit an opinion letter from
legal counsel. That opinion letter must
clearly state, subject only to customary
assumptions, limitations, and
qualifications, that in a proceeding
under the Bankruptcy Code, the
bankruptcy court would not treat the
letter of credit or proceeds of the letter
of credit as property of the account
party’s bankruptcy estate, or the
bankruptcy estate of any other Phase II
competitive bidding process recipientrelated entity requesting issuance of the
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
letter of credit under section 541 of the
Bankruptcy Code.
91. Issuing Bank Eligibility. The
letters of credit for winning bidders
must be obtained from a domestic or
foreign bank meeting the requirements
adopted herein. The record suggests that
entities, especially small entities, lack
established relationships with banks
that met the requirements the
Commission adopted for the rural
broadband experiments, which can
make it costly for such entities to obtain
a letter of credit. Moreover, some
entities may intend to bid on smaller
projects, and larger banks that met the
Commission’s requirements for the rural
broadband experiments may be
unwilling to issue letters of credit below
a certain threshold. Because these
obstacles are also faced by rural
broadband experiment participants and
could potentially constrain participation
in the Remote Areas Fund, the
Commission concludes that it serves the
public interest to expand the pool of
banks that are eligible to issue letters of
credit for all recipients of support
authorized through competitive bidding
to serve fixed locations, while
maintaining objective criteria that will
provide sufficient assurance that letters
of credit issued by such banks will be
honored.
92. Specifically, the Commission
requires generally that, for U.S. banks,
the bank must be insured by the Federal
Deposit Insurance Corporation (FDIC)
and have a Weiss bank safety rating of
B- or higher. This will expand the
number of eligible U.S. banks from
fewer than 70 banks to approximately
3,600 banks. Whereas banks that intend
to participate in the commercial markets
obtain credit ratings, Weiss rates all
banks that report sufficient data for
Weiss to analyze. Importantly, Weiss is
a subscription service and is not
compensated by the banks that it rates.
Weiss offers an independent and
objective perspective of the safety of the
banks it rates based on capitalization,
asset quality, profitability, liquidity, and
stability indexes. By requiring that the
banks have a rating of at least B-, the
Commission ensures that the bank has
a rating that at a minimum demonstrates
that the bank ‘‘offers good financial
security and has the resources to deal
with a variety of adverse economic
conditions.’’ And by requiring that U.S.
issuing banks also be FDIC-insured, the
Commission has the added benefit of
relying on the oversight of the FDIC and
its protections. The Commission
concludes that this approach achieves
an appropriate balance between
encouraging the participation in the
auction, particularly of small entities,
PO 00000
Frm 00014
Fmt 4701
Sfmt 4700
and protecting the public funds. The
Commission expands the eligibility of
banks to lower barriers to participation
in the auction for entities that may not
otherwise be able to obtain a letter of
credit from a smaller pool of banks,
while also ensuring that it puts in place
adequate controls to protect the Fund by
adopting alternative eligibility criteria
that give the Commission independent
assurance of the safety and the
soundness of the bank issuing a letter of
credit.
93. In lieu of obtaining a letter of
credit from a U.S. bank that meets these
requirements, the Commission will also
permit entities to obtain letters of credit
from CoBank or the National Rural
Utilities Cooperative Finance
Corporation (CFC) as long as these two
entities retain assets that place them
among the top 100 U.S. banks, and they
maintain a credit rating of BBB- or better
from Standard & Poor’s (or the
equivalent from a nationally-recognized
credit rating agency). These entities are
not traditional banks in that they do not
accept deposits from members of the
public. Thus, these entities do not have
a Weiss bank safety rating and are not
FDIC-insured. However, the
Commission finds that CFC and CoBank
can be considered banks in the context
of the Commission’s program because
they use their capital resources to make
loans.
94. CoBank has met the more
stringent issuing bank eligibility
requirements for the Mobility Fund and
rural broadband experiments, and has
issued a number of letters of credit for
these programs. Although CoBank is not
FDIC-insured, it is insured by the Farm
Credit System Insurance Corporation,
which the Commission found provides
protections that are equivalent to those
indicated by holding FDIC-insured
deposits. As long as CoBank retains its
standing with assets equivalent to a top
100 U.S. bank and a qualified credit
rating, the Commission sees no reason
to exclude CoBank from eligibility
simply because it is not rated by Weiss.
95. CFC’s assets also make it
comparable to commercial depository
banks that are in the top 100 based on
total assets and it has a credit rating
from Standard & Poor’s of A. But
because CFC is not a depository
institution and it is not part of the Farm
Credit System, it is not FDIC or FCSICinsured. Nevertheless, the Commission
concludes that CFC is uniquely situated
and should be made eligible to the
extent it retains its standing with assets
equivalent to a top 100 U.S. bank and
a qualified credit rating. CFC is ‘‘owned
by, and exclusively serves’’ rural utility
providers, and CFC manages and funds
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
its affiliate, the Rural Telephone
Finance Cooperative (RTFC), which
lends primarily to telecommunications
providers and affiliates across the
nation. As the largest non-governmental
lender for rural utilities, CFC has
specialized institutional knowledge
regarding the types of entities that the
Commission expects will participate in
universal service competitive bidding to
serve fixed locations and has
demonstrated that it has significant and
long-term experience in financing the
deployment of rural networks. A
number of entities that participated in
the rural broadband experiments and
entities that have expressed interest in
participating future competitive bidding
have indicated that they have an
established relationship with CFC. This
unique and longstanding role in rural
network deployment coupled with
CFC’s significant participation in other
rural federal government programs, its
substantial assets, and its sustained
credit rating, provides the Commission
with sufficient assurance that CFC has
the qualifications to assess the financial
health of potential bidders and honor
the letters of credit that it issues at the
request of these bidders, without the
need for the independent oversight of
CFC’s safety and soundness that would
be offered by FDIC or FCSIC insurance
or a Weiss safety rating. The
Commission concludes that based on
the totality of these circumstances, CFC
is eligible to issue letters of credit
despite the fact that it does not meet the
FDIC and Weiss rating requirements.
The Commission notes that it is not
adopting alternative eligibility
requirements that would permit banks
that are not FDIC or FCSIC-insured or
that do not have a Weiss bank safety
rating to issue letters of credit. Instead
the Commission is concluding that, for
purposes of providing security for
winning bidders, a letter of credit from
CFC provides assurances that are
equivalent to those provided by banks
meeting the Commission’s general
criteria, due to CFC’s uniquely extensive
experience in financing rural networks,
its significant participation in other
federal government programs, and its
long-standing relationship with a class
of potential auction bidders.
96. For non-U.S. banks, the
Commission retains the same eligibility
requirements that it adopted for the
rural broadband experiments.
Accordingly, for non-U.S. banks, the
Commission requires that the bank be
among the 100 largest non-U.S. banks in
the world (determined on the basis of
total assets as of the end of the calendar
year immediately preceding the
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
issuance of the letter of credit,
determined on a U.S. dollar equivalent
basis as of such date). The bank must
also have a branch in the District of
Columbia or other agreed-upon location
in the United States, have a long-term
unsecured credit rating issued by a
widely-recognized credit rating agency
that is equivalent to a BBB- or better
rating by Standard & Poor’s, and must
issue the letter of credit payable in
United States dollars.
97. The Commission is not persuaded
that it should further expand the bank
eligibility requirements to include all
banks that are federally-insured. If the
Commission were to permit entities to
use any bank that is federally-insured, it
would need to conduct a comprehensive
review of every bank to determine
whether it has adequate safety and
soundness. Because the Commission
lacks the expertise to conduct such a
review and it would delay the
authorization of winning bidders, it
concludes that expanding the number of
eligible U.S. banks to banks that are
FDIC-insured and have a Weiss bank
safety rating of B- or higher addresses
the concerns of small entities while also
using an objective and administratively
feasible method to judge the financial
security of a bank. The Commission also
finds that relying on an independent
evaluation of the safety and soundness
of a bank that uses a rating based on a
number of financial indices provides a
more comprehensive view of a bank’s
financial viability than other proposals
submitted in the record that would rely
solely on the size of the bank or its
capitalization.
98. The Commission notes that
winning bidders have flexibility in how
they structure their letter of credit
arrangements with issuing banks and
may choose to obtain multiple letters of
credit over the build-out period. Entities
may negotiate all the terms of their letter
of credit with the issuing bank,
including the length of the letter of
credit, so long as the letter of credit is
available to USAC for the entire
duration of the build-out period and it
is at a minimum an annual letter of
credit that follows the terms and
conditions of the Commission’s model
letter of credit. If a recipient has been
issued a letter of credit from a bank that
expires during the build-out period, that
recipient must notify USAC
immediately and an approved
replacement letter of credit must be put
in place before the letter of credit
expires. If a bank fails so that it is no
longer able to honor a letter of credit or
if the bank no longer meets the
eligibility requirements the Commission
adopts herein, the recipient must notify
PO 00000
Frm 00015
Fmt 4701
Sfmt 4700
44427
USAC and will have 30 days to secure
a letter of credit from another issuing
bank that meets the Commission’s
eligibility requirements. The
Commission also reserves the right to
temporarily cease disbursements of
monthly support until a recipient
submits to the Commission a new letter
of credit that meets its requirements and
note that winning bidders will be
subject to non-compliance measures if
they fail to obtain a new and acceptable
letter of credit.
99. Letter of Credit Commitment
Letter. As the Commission required for
the Mobility Fund Phase I, Tribal
Mobility Fund Phase I, and the rural
broadband experiments, winning
bidders will be required to submit a
letter from an acceptable bank
committing to issue an irrevocable
stand-by letter of credit, in the required
form, to that entity as part of the longform process. The commitment letter
will at a minimum provide the dollar
amount of the letter of credit and the
issuing bank’s agreement to follow the
terms and conditions of the
Commission’s model letter of credit,
found in Appendix B.
100. Value of Letter of Credit. When
a winning bidder first obtains a letter of
credit, it must be at least equal to the
first year of authorized support. Before
the winning bidder can receive its next
year’s support, it must modify, renew,
or obtain a new letter of credit to ensure
that it is valued at a minimum at the
total amount of money that has already
been disbursed plus the amount of
money that is going to be provided in
the next year. The Commission
concludes that requiring recipients to
obtain a letter of credit on at least an
annual basis will help minimize
administrative costs for USAC and the
recipient rather than having to negotiate
a new letter of credit for each
disbursement.
101. Recognizing that the risk of a
default will lessen as a recipient makes
progress towards building its network,
the Commission finds that it is
appropriate to modestly reduce the
value of the letter of credit in an effort
to reduce the cost of maintaining a letter
of credit as the recipient meets certain
service milestones. Specifically, once an
entity meets the 60 percent service
milestone that entity may obtain a new
letter of credit or renew its existing
letter of credit so that it is valued at 90
percent of the total support amount
already disbursed plus the amount that
will be disbursed the next year. Once
the entity meets the 80 percent service
milestone that entity may obtain a new
letter of credit valued at 80 percent of
the total support amount already
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44428
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
disbursed plus the amount that will be
disbursed the next year. The
Commission concludes that the benefit
to recipients of potentially decreasing
the cost of the letter of credit as it
becomes less likely that a recipient will
default outweighs the potential risk that
if a recipient does default and is unable
to cure, the Commission will be unable
to recover a modest amount of support.
102. The Commission is not
persuaded, however, that it should
further reduce the value of the letter of
credit so that it only covers 50 percent
of the total of support disbursed
throughout the build-out period. The
Commission concludes that the
approach it adopts is better calibrated to
the potential risk of default because it
takes into account the substantial
performance of the recipient. While the
Commission acknowledges that
reducing the value of the letter of credit
to 50 percent of the amount of support
disbursed would further reduce the
costs for some recipients, it finds that on
balance accomplishing the
Commission’s duty as stewards of the
public’s funds by ensuring that it can
recover a substantial percentage of the
support the Commission disburses in
the event that an entity is not using the
support for its intended use outweighs
the potential costs for participants.
103. Applicability to All Winning
Bidders. The Commission is not
persuaded that it should exempt
existing ETCs that already receive highcost support from the letter of credit
requirement. As the Commission
concluded in the Rural Broadband
Experiments Order, requiring all entities
to obtain a letter of credit is a necessary
measure to ensure that it can recover
support from any recipient that cannot
meet the build-out obligations for the
Phase II competitive bidding process.
Compliance with existing universal
service rules does not necessarily
guarantee that an entity is financially
qualified to undertake the obligations of
the Phase II competitive bidding
process. Moreover, requiring all
winning bidders to obtain a letter of
credit ensures that all bidders are
subject to the same default process if
they do not meet the required service
milestones.
104. Costs of Letters of Credit. The
Commission continues to believe that
the advantages of letters of credit in
ensuring that Connect America support
can be quickly reclaimed to protect
ratepayers’ contribution to the universal
service fund, and that the support is
protected from being included in a
bankruptcy estate, outweigh the
potential costs of obtaining letter of
credit. While the Commission
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
understands that the requirement will
impose costs on participants, it expects
that all entities will factor the cost of
letters of credit into their bids.
Moreover, the Commission anticipates
that its decision to tailor the
requirement so that the letter of credit
will remain open for only the build-out
period and modestly reduce the value of
the letter of credit as the recipient meets
certain service milestones will lessen
the cost of maintaining a letter of credit.
The Commission also expects that by
expanding the pool of eligible issuing
U.S. banks to approximately 3,600 and
also permitting entities to obtain a letter
of credit from CFC, a bank that has an
established relationship with a number
of small entities, will potentially further
reduce the costs of obtaining a letter of
credit.
105. Tribal Nations and TriballyOwned Applicants. For the same
reasons the Commission articulated in
the Rural Broadband Experiments
Order, the Commission recognizes there
may be a need for greater flexibility
regarding letters of credit for Triballyowned and -controlled winning bidders.
Thus, if any Tribal Nation or Triballyowned and -controlled applicant for the
Phase II competitive bidding process is
unable to obtain a letter of credit, it may
file a petition for a waiver of the letter
of credit requirement. Waiver applicants
must show, with evidence acceptable to
the Commission, that the Tribal Nation
is unable to obtain a letter of credit
because of limitations on the ability to
collateralize its real estate, that Phase II
support will be used for its intended
purposes, and that the funding will be
used in the best interests of the Tribal
Nation and will not be wasted. Tribal
applicants could establish this showing
by providing, for example, a clean audit,
a business plan including firm
financials with projections of how
construction will be funded, provision
of financial and accounting data for
review (under protective order, if
requested), or other means to assure the
Commission that the winning project is
a viable project.
c. ETC Designation Documentation
106. Consistent with the
Commission’s decision to require
winning bidders to obtain ETC
designation from the relevant states or
the Commission as applicable, as
discussed more fully below the
Commission will also require entities to
submit appropriate documentation in
their long-form application of their ETC
designation in all areas for which they
will receive support within 180 days of
being announced as a winning bidder.
In addition to submitting the relevant
PO 00000
Frm 00016
Fmt 4701
Sfmt 4700
state or Commission orders, each
winning bidder should provide
documentation showing that the
designated areas (e.g., census blocks,
wire centers, etc.) cover its winning bid
areas so that it is clear that the applicant
has ETC status in each winning bid area.
For example, the obligation may be
satisfied by providing maps of the
recipient’s ETC designation area, map
overlays of the winning bid areas, or
charts listing designated areas.
Additionally, the Commission will
require winning bidders to submit a
letter with their documentation from an
officer of the company certifying that
their ETC designation for each state
covers the relevant areas where the
winning bidders will receive support.
These requirements will help the
Commission verify that each winning
selected bidder is authorized to operate
in the areas where it will be receiving
support. The Commission does not
anticipate that this requirement will
impose an unreasonable burden on
winning bidders given that it expects
they will conduct their own due
diligence review to ensure that their
existing or new ETC designations cover
their awarded areas.
3. Forfeiture
107. Discussion. The Commission
concludes that any entity that files a
short-form application to participate in
the Phase II competitive bidding process
will be subject to a forfeiture in the
event of a default before it is authorized
to begin receiving support. The
Commission will impose a forfeiture in
lieu of a default payment. Specifically,
the Commission concludes that a base
forfeiture per violation of $3,000,
subject to adjustment based on the
criteria set forth in the Commission’s
forfeiture guidelines, is appropriate in
these circumstances given that the
failure to supply the required
information will prevent the Bureau
from assessing a winning bidder’s
qualifications. A $3,000 base forfeiture
amount is equivalent to the base
forfeiture that is imposed for failing to
file required forms or information with
the Commission. While, as the
Commission explains below, not all
defaults will relate to the failure to
submit the required forms or
information, it concludes that for
administrative simplicity and to provide
bidders with certainty as to the base
forfeiture that will apply for all preauthorization defaults, it is reasonable
to subject all bidders to the same $3,000
base forfeiture per violation.
108. An entity will be considered in
default and will be subject to forfeiture
if it fails to timely file a long-form
E:\FR\FM\07JYR2.SGM
07JYR2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
application or meet the document
submission deadlines outlined above or
is found ineligible or unqualified to
receive Phase II support by the Bureaus
on delegated authority, or otherwise
defaults on its bid or is disqualified for
any reason prior to the authorization of
support. The Commission notes that a
winning bidder will be subject to the
base forfeiture for each separate
violation of the Commission’s rules. For
purposes of the Phase II competitive
bidding process, the Commission
defines a violation as any form of
default with respect to the minimum
geographic unit eligible for bidding. In
other words, there shall be separate
violations for each geographic unit
subject to a bid. That will ensure that
each violation has a relationship to the
number of consumers affected by the
default, but is not unduly punitive.
Such an approach will also ensure that
the total forfeiture for a default is
generally proportionate to the overall
scope of the winning bidder’s bid. To
ensure that the amount of the base
forfeiture is not disproportionate to the
amount of an entity’s bid, the
Commission also limits the total base
forfeiture to five percent of the bidder’s
total bid amount for the support term.
For the Mobility Fund and Tribal
Mobility Fund, the Bureaus found that
five percent of the total bid amount
provided sufficient incentive for auction
participants to fully inform themselves
of the obligations associated with
participation in the auctions without
being unduly punitive.
109. The Commission finds that by
adopting such a forfeiture, it will
impress upon recipients the importance
of being prepared to meet all of the
Commission’s requirements for the postselection review process and emphasize
the requirement that they conduct a due
diligence review to ensure that they are
qualified to participate in the Phase II
competitive bidding process and meet
its terms and conditions.
sradovich on DSK3GDR082PROD with RULES2
VI. ETC Designation
110. In this section, the Commission
adopts more specific details related to
the implementation of the ETC
designation requirement for the Phase II
competitive bidding process. First, the
Commission requires winning bidders
in the Phase II competitive bidding
process to submit proof of their ETC
designation within 180 days of the
public notice announcing them as
winning bidders. Second, the
Commission concludes that forbearance
from the section 214(e)(5) service area
conformance requirement for recipients
of the Phase II competitive bidding
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
process is appropriate and in the public
interest.
A. ETC Designation Timing
111. Discussion. As noted above, the
Commission will require winning
bidders for the Phase II competitive
bidding process to submit proof of their
ETC designation as part of the long-form
application process. Such proof must be
submitted within 180 days of the public
notice announcing them as winning
bidders. Failure to obtain ETC status
and submit the required documentation
by the deadline is an event of default.
112. In the rural broadband
experiments, the Commission learned
that while states have diligently
pursued resolution of the ETC
designation applications filed by rural
broadband experiment provisionally
selected bidders, a number of states
were unable to make a final decision on
an ETC designation within a 90-day
timeframe, often due to state-specific
procedural requirements or because the
application was contested. Of the 18
provisionally selected bidders that have
been authorized or are still undergoing
post-selection review, only nine were
able to submit documentation of their
ETC designations for all of their
proposed service areas within the 90day timeframe, and several of these
entities had existing ETC designations
that already covered their proposed
service areas. The Commission therefore
concludes that it would not be
appropriate to adopt a rebuttable
presumption that a state commission
lacks jurisdiction over a potential
recipient of support merely because the
state has failed to complete an ETC
proceeding within 90 days of initiating
such a proceeding.
113. The Commission notes that only
a limited number of provisionally
selected bidders were selected for the
rural broadband experiments. In the
Phase II competitive bidding process,
there may be situations where there are
multiple winning bidders in each state
that do not already have an ETC
designation, and the Commission
expects that states will need to have
more time to address multiple petitions.
On balance, the Commission concludes
that 180 days should provide states with
enough time to consider ETC
designation applications, without
unreasonably delaying the authorization
of Phase II support and commencement
of broadband deployment to consumers
lacking service.
114. In the event the bidder is unable
to obtain the necessary ETC
designations within 180 days, the
Commission finds that it would be
appropriate to waive the 180-day
PO 00000
Frm 00017
Fmt 4701
Sfmt 4700
44429
timeframe if the bidder is able to
demonstrate that it has engaged in good
faith efforts to obtain an ETC
designation, but the proceeding is not
yet complete. A waiver of the 180-day
deadline would be appropriate if, for
example, an entity has an ETC
application pending with a state and the
state’s next scheduled meeting at which
it would consider the ETC application
will occur after the 180-day window.
This is consistent with the general
approach the Commission took in the
rural broadband experiments.
115. The Commission declines to
adopt a hard rule requiring a winning
bidder to file an ETC application within
a specified amount of time to be
considered acting in good faith, because,
as it found in the rural broadband
experiments, there were various
circumstances impacting the ability of
individual bidders to file their ETC
applications. The Commission expects
that winning bidders will have an
incentive to file their ETC applications
expeditiously so that they can meet the
requirements to begin receiving support
as soon as possible. Instead, based on
what the Commission observed in the
rural broadband experiments, when
considering waivers of the 180-day
timeframe for obtaining ETC
designation, the Commission will
presume that an entity will have acted
in good faith if the entity files its ETC
application within 30 days of the release
of the public notice announcing that it
is a winning bidder.
116. The Commission is not
persuaded that it needs to take the
further step of adopting a rebuttable
presumption that a state lacks
jurisdiction in the event that the ETC
does not act on a petition within a
certain amount of time or does not make
a final decision on a petition within a
certain amount of time. A number of
state commenters explained that they
need varying amounts of time to handle
ETC petitions based on their available
resources, the complexity of the
application, and whether it is contested.
The Commission has found through its
experience with the rural broadband
experiments that while some states may
need more time to initiate action and
make a decision on applications, they
are committed to acting diligently
within the framework of their existing
state processes to act on ETC requests to
expand voice and broadband-capable
networks to their residents. The
Commission saw no situations in the
rural broadband experiments where a
state refused to initiate action on a
petition, took an unreasonable amount
of time to declare that it did not have
jurisdiction over a particular carrier, or
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44430
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
delayed making a decision on an
application for no legitimate reason.
And the Commission notes that any
circumstances where a state will need
more time due to procedural
requirements or resource issues can be
dealt with through the waiver process
outlined above. Accordingly, to preserve
the primary role that Congress gave the
states in designating ETCs, the
Commission reaffirms that it will act on
an ETC designation petition pursuant to
section 214(e)(6) ‘‘only in those
situations where the carrier can provide
the Commission with an affirmative
statement from the state commission or
a court of competent jurisdiction that
the carrier is not subject to the state
commission’s jurisdiction.’’
117. Due to the Commission’s
experience with the rural broadband
experiments, the Commission also
continues to conclude that there is
nothing in the record before the
Commission concerning the designation
of ETCs that would warrant changing
the existing framework by adopting
rules requiring states to streamline their
review of ETC petitions, or adopting a
rebuttable presumption that states do
not have jurisdiction over certain types
of providers for purposes of the Phase
II competitive bidding process. The
rural broadband experiments have
shown the Commission that obtaining
an ETC designation from a state
commission generally has not been too
burdensome for most entities. Instead,
most of the wide variety of entities that
submitted bids and were provisionally
selected did not face unreasonable
delays in obtaining ETC designations.
The Commission notes that a number of
states acted on ETC applications that
were submitted by WISPs, and only two
states concluded that they lacked
jurisdiction over particular providers,
two that are WISPs that would provide
VoIP service and one that is an electric
company. Accordingly, the Commission
is not persuaded that it should disturb
the statutory construction giving states
primary jurisdiction in designating
ETCs. The Commission also notes that
requiring that all entities seek ETC
designation from the relevant states first
rather than going straight to the
Commission will ensure that all
participants in the Phase II competitive
bidding process must follow the same
procedural requirements for submitting
an application to obtain an ETC
designation.
118. The Commission also declines to
automatically grant petitions after they
have been pending with the states for a
certain amount of time. Determining
whether an entity is qualified to become
an ETC is a fact-intensive inquiry, and
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
the more complex and contested
petitions are likely to take more time. It
would be adverse to the public interest
to forgo this inquiry into an entity’s
qualifications simply because an
application is taking more time to
review.
B. Forbearance From Service Area
Redefinition Process
119. Discussion. The Commission
now concludes that forbearance from
the section 214(e)(5) service area
conformance requirement for recipients
of the Phase II competitive bidding
process is appropriate and in the public
interest. As the Commission discusses
in more detail below, the Commission
has decided that it is a more efficient
use of Connect America support to
provide support to only one provider in
a given geographic area in exchange for
that provider’s commitment to offer
service that meets the Commission’s
requirements throughout the funded
area. If the rural telephone affiliate of a
price cap carrier declines the offer of
support and another entity is selected as
the winning bidder to serve a portion of
its area through the competitive bidding
process, the incumbent will be replaced
by the Phase II competitive bidding
recipient in those areas, and the
incumbent’s legacy service area will no
longer be a relevant consideration in
determining where the winning bidder
should be designated as an ETC.
120. Accordingly, for those entities
that obtain ETC designations as a result
of being selected as winning bidders for
the Phase II competitive bidding
process, the Commission forbears from
applying section 214(e)(5) of the Act
and section 54.207(b) of its rules, insofar
as those sections require that the service
area of such an ETC conform to the
service area of any rural telephone
company serving an area eligible for
Phase II support. The Commission notes
that forbearing from the service area
conformance requirement eliminates the
need for redefinition of any rural
telephone company service areas in the
context of the Phase II competitive
bidding process. However, if an existing
ETC seeks support through the Phase II
competitive bidding process for areas
within its existing service area, this
forbearance will not have any impact on
the ETC’s pre-existing obligations with
respect to other support mechanisms
and the existing service area.
121. The Commission concludes that
forbearance is warranted in these
limited circumstances. As the
Commission noted above, its objective is
to distribute support to winning bidders
as soon as possible so that they can
begin the process of deploying new
PO 00000
Frm 00018
Fmt 4701
Sfmt 4700
broadband to consumers in those areas.
Case-by-case forbearance would likely
delay its post-selection review of
entities once they are announced as
winning bidders. The Act requires the
Commission to forbear from applying
any requirement of the Act or its
regulations to a telecommunications
carrier if the Commission determines
that: (1) Enforcement of the requirement
is not necessary to ensure that the
charges, practices, classifications, or
regulations by, for, or in connection
with that telecommunications carrier or
telecommunications service are just and
reasonable and are not unjustly or
unreasonably discriminatory; (2)
enforcement of that requirement is not
necessary for the protection of
consumers; and (3) forbearance from
applying that requirement is consistent
with the public interest. The
Commission concludes each of these
statutory criteria is met for winning
bidders of the Phase II competitive
bidding process.
122. Just and Reasonable. The
Commission concludes that compliance
with the service area conformance
requirement of section 214(e)(5) of the
Act and section 54.207(b) of the
Commission’s rules is not necessary to
ensure that the charges, practices, and
classifications of carriers designated as
ETCs in areas for which support is
authorized through the Phase II
competitive bidding process are just and
reasonable and not unjustly or
unreasonably discriminatory. As
discussed below, the Commission finds
that the three factors traditionally taken
into account by the Commission and the
states when reviewing a potential
redefinition of a rural service area
pursuant to section 214(e)(5) of the Act
no longer apply in the context of
designating ETCs in areas for which
support is authorized through a Phase II
competitive bidding process. Moreover,
all ETCs—whether rural ETCs or other
entities designated as ETCs in areas
eligible for Phase II competitive bidding
support in order to receive such
support—will continue to be subject to
the requirements of the Act and of the
Commission’s rules that consumers
have access to reasonably comparable
services at reasonably comparable rates.
In fact, as the Commission discusses
below, the expansion of voice and
broadband-capable networks into these
unserved Phase II areas may expand the
choice of telecommunications services
for consumers living in areas located
near the Phase II funded areas. The
resulting competition is likely to help
ensure just, reasonable, and
nondiscriminatory offerings of services.
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
For these reasons, the Commission finds
that the first prong of section 10(a) is
met.
123. Consumer Protection. The
Commission also concludes that it is not
necessary to apply the service area
conformance requirement to a winning
bidder in the Phase II competitive
bidding process to protect consumers.
Forbearance from the service area
conformance requirement in these
limited circumstances will not harm
consumers currently served by the rural
telephone companies in the relevant
service areas. To the contrary, these
consumers will benefit because an
entity that replaces the incumbent rural
telephone company as the only ETC
receiving support to serve the area will
be required to use its Phase II
competitive bidding process support to
expand voice and broadband-capable
networks with service quality that meets
the Commission’s requirements.
Moreover, Phase II recipients, like all
ETCs, will be required to certify that
they will satisfy applicable consumer
protection and service quality standards
in their service areas. For these reasons,
the Commission finds that the second
prong of section 10(a) is met.
124. Public Interest. The Commission
concludes that it is in the public interest
to forbear from the service area
conformance requirement in these
limited circumstances. As the
Commission explained above, by
deciding to distribute Phase II support
through a competitive bidding
mechanism and eliminating the
identical support rule, the Commission
has set up a system under which only
one ETC will receive support to serve
Phase II eligible areas. In circumstances
where the incumbent declines the offer
and does not win support (either
because it does not bid, or is outbid by
another provider), the Commission has
decided that the competitive winner
will replace the incumbent as the only
provider that will be required to provide
supported services in that area in
exchange for receiving support. The
Commission notes that if the incumbent
price cap carrier chooses not to bid or
loses in the competitive bidding process
and is replaced by the Phase II auction
winning bidder, it will no longer have
the federal ETC obligation to provide
voice service in that area and it can
apply for permission to discontinue its
provision of voice service through the
section 214(a) discontinuance process,
and relinquish its ETC designation for
those areas pursuant to section
214(e)(4). Thus, a rural telephone
carrier’s service area is no longer a
relevant consideration in determining
where a Phase II competitive bidding
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
process recipient should be designated
as an ETC.
125. Accordingly, the analysis that the
relevant state and the Commission
historically undertook when deciding
whether to redefine a rural telephone
carrier’s service area is not applicable to
the Phase II competitive bidding
process. Past concerns that an ETC
serving only a relatively low cost
portion of a rural carrier’s service area
might cream skim by receiving per line
support based on the rural carrier’s cost
of serving the entire area are not
relevant to Phase II support, which will
be awarded through a competitive
process. The incumbent rural telephone
company will no longer be receiving
support to serve the area won by
another entity, the Phase II recipient’s
support will be based on the amount it
bids to serve the area, and the Phase II
recipient will be required to use its
support to serve areas that the
marketplace will not serve absent those
subsidies. Because the service area
redefinition analysis is not relevant to
Phase II, it no longer serves the public
interest for the states and the
Commission to work together to define
the service area of Phase II recipients
serving rural telephone companies’
service areas. The Commission notes
that the actions it takes today do not
otherwise impact the state’s primary
role in designating ETCs.
126. Similarly, the concerns about
protecting rural carriers and avoiding
the imposition of additional
administrative burden on such carriers
that led to the adoption of the service
area conformance requirement nearly
two decades ago are not applicable in
these limited circumstances. First, the
Commission notes that the affected
incumbent rural telephone companies
are affiliated with price cap holding
companies, which typically serve both
rural and urban areas. Second, each
incumbent rural telephone company
will not be automatically replaced by a
competitive provider. Each price cap
carrier holding company had the
opportunity to accept model-based
support and be the sole Connect
America-supported provider throughout
its territory. The price cap carrier
holding company will also have the
opportunity to compete so that Connect
America support is provided to the most
efficient provider. Only if the price cap
carrier holding company chooses not to
participate in the Phase II competitive
bidding process or loses to a
competitive carrier will it be replaced
by a competitive provider as the sole
recipient of Connect America support.
Finally, the Commission notes that its
decision to grant forbearance in these
PO 00000
Frm 00019
Fmt 4701
Sfmt 4700
44431
limited circumstances does not impose
any additional administrative
requirements on rural telephone
companies.
127. The Commission also notes that
requiring each Phase II recipient to
conform its service areas to those of the
rural telephone companies in the states
they seek to serve could result in
lengthy redefinition proceedings, which
may delay the Commission’s postselection review of winning bidders and
consequently delay its distribution of
support and the deployment of
advanced voice and broadband-capable
networks. Some rural broadband
experiment provisionally selected
bidders found that it was timeconsuming to obtain ETC designations
in circumstances where the incumbent
rural telephone company challenged
their ETC petitions. The Commission
expects that the forbearance it provides
here will help accelerate the ETC
designation process when applications
are challenged because the state
commission will not need to seek the
Commission’s agreement through a
service redefinition process or wait 90
days for the service redefinition to be
automatically granted if the Commission
is unable to act within 90 days.
128. Finally, the Commission
concludes that the forbearance in these
limited circumstances will not harm
competitive market conditions. If
anything, forbearance may enhance
competition by introducing new service
providers to the market. Price cap
carriers that have an existing network
and customers in the areas won by
another entity may choose to continue
to operate in those areas, albeit without
subsidies. And as the Phase II recipient
is building a network in its funded
areas, it may also find that it has a
business case to build its network and
provide service to customers in
surrounding areas, thereby increasing
competition and providing more options
for consumers.
VII. Accountability and Oversight
129. In this section the Commission
adopts measures for ensuring that
recipients of Connect America support
to serve fixed locations awarded
through a competitive bidding process
use their support for its intended
purposes. First, the Commission adopts
reporting requirements that will enable
the Commission to monitor recipients’
progress in meeting their deployment
obligations. Second, the Commission
explains how the letter of credit
requirement it adopts above will work
with the existing support reduction
framework it adopted in the December
2014 Connect America Order to
E:\FR\FM\07JYR2.SGM
07JYR2
44432
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
sradovich on DSK3GDR082PROD with RULES2
calibrate support reductions to the
extent of a recipient’s non-compliance
with its build-out obligations. Finally,
the Commission clarifies that for the
section 54.314 certification, the relevant
states or ETCs may certify that support
was used for its intended purpose for a
given year if it is set aside in an account
dedicated specifically for upgrades
necessary to meet the relevant
requirements.
A. Monitoring Progress in Meeting
Deployment Obligations
130. Discussion. The Commission
concludes that the public interest will
be served by adopting reporting
requirements for recipients of support to
serve fixed locations awarded through a
competitive bidding process comparable
to that adopted for price cap carriers
accepting model-based support and rateof-return carriers. These reporting
obligations will enhance the
Commission’s ability to monitor the use
of Connect America support and ensure
that it is being used for its intended
purposes. Specifically, the Commission
requires such recipients of support to
submit annually the number and list of
the geocoded locations to which they
are offering broadband meeting the
requisite requirements with Connect
America support in the prior 12-month
period. Because the Commission
anticipates that recipients will use a
variety of technologies and it would be
useful to understand what types of
networks ETCs are deploying so that it
can monitor the use of Connect America
support, it also requires that the list
specify the types of technology (e.g.,
fixed wireless, fiber) that is being used
to offer service to each location.
131. The first location list will be due
by the last business day of the second
calendar month following the one-year
anniversary of support authorization
and must reflect the number and list of
geocoded locations (if any) where the
recipient already was offering service
meeting the Commission’s requirements
and all new locations (if any) where the
recipient was offering service meeting
the requisite requirements by the end of
the first year. Phase II auction recipients
will then be required to submit a list of
locations where they are newly offering
service by the last business day of the
second calendar month following each
subsequent support year until they have
met the final service milestone. Phase II
auction recipients will be free—and
indeed, encouraged—to submit
information on a rolling basis
throughout the year to the online portal,
as soon as service is offered, so as to
avoid filing all of their locations at the
deadline. A best practice would be to
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
submit the information no later than 30
days after service is initially offered to
locations in satisfaction of deployment
obligations, to avoid any potential
issues with submitting large amounts of
information at year end.
132. The Commission will also
require that Phase II auction recipients
file certifications that they have met
their interim service milestones and are
meeting the requisite public interest
obligations by the last business day of
the second calendar month following
each relevant service milestone. As
noted above, if an entity is able to build
out its network more quickly to offer
service and close-out its letter of credit
before the final build-out deadline, it
may notify the Commission at any time
that it has met its final service
milestone, and submit its final build-out
certification and location list at that
time. This notification will trigger
USAC’s verification that the build-out
has been completed.
133. The Commission finds that
collecting this information from
recipients of support to serve fixed
locations awarded through the
competitive bidding process serves the
public interest for the same reasons as
collecting this information from price
cap carriers and rate-of-return carriers
accepting model-based support. As
recommended by the Government
Accountability Office, the Commission
and USAC will analyze the data and
determine how Connect America
support is being used to ‘‘improve
broadband availability, service quality,
and capacity.’’ As the Commission has
already decided, these data will also be
made publicly available at a granular
level and in a user friendly manner. The
Commission finds that the benefits in
collecting this information outweigh
any potential burdens on the recipients
in reporting these data, given that the
Commission expects that recipients will
be already collecting such data for their
own business purposes, to certify that
they have met service milestones, and to
be prepared to respond to compliance
reviews that it directs USAC to
undertake. These auction recipients that
fail to file their location lists and buildout certifications by the required
deadline will be subject to the support
reduction scheme in section 54.316(c) of
the Commission’s rules.
134. The Commission will also
require these auction support recipients
to certify each year after they have met
their final service milestone that the
network they operated in the prior year
meets the Commission’s performance
requirements. Phase II auction
recipients will continue to receive
support after they have met their service
PO 00000
Frm 00020
Fmt 4701
Sfmt 4700
milestones. This requirement will
ensure that the Commission is able to
monitor that Phase II auction recipients
are continuing to use their Phase II
auction support for its intended use,
and they are continuing to offer service
meeting the relevant minimum
requirements. Because at this point in
their support terms, Phase II auction
recipients will no longer be filing their
build-out certifications and locations
lists, the Commission concludes that it
is reasonable to collect this certification
in recipients’ annual section 54.313
reports due July 1st that Phase II auction
recipients will already be filing each
year.
135. The Commission concludes that
the benefit to the Commission in being
able to track the progress of Phase II
recipients and monitor their use of the
public’s funds outweighs the potential
costs that will be imposed on recipients.
The Commission expects that Phase II
auction recipients will already be
tracking their progress and their
expenses before they have to meet their
first service milestone and then
monitoring their network’s performance
after their build-out is completed to
meet the terms and conditions of Phase
II auction support. Accordingly, the
Commission does not anticipate that
these additional reporting requirements
will impose unreasonable costs on
recipients.
136. The Commission will also
require recipients of Phase II
competitive bidding support to identify
the total amount of Phase II support, if
any, that they used for capital
expenditures in the previous calendar
year. The Commission will collect this
information in recipients’ annual
section 54.313 reports, recognizing that
recipients will be required to file annual
reports throughout their support term.
As the Commission concluded in the
December 2014 Connect America Order,
the benefit to the Commission of being
able to determine how recipients are
using Phase II funding outweigh any
potential burden on those recipients in
submitting this information given that it
expects they will track their capital
expenditures for Phase II in the regular
course of business. Such information
also may help the Commission
determine whether alternative
approaches are necessary to maintain
universal service at the conclusion of
the term of Phase II support. The
Commission notes that all Phase II
auction recipients should begin filing
their section 54.313 annual reports
starting the year after they begin
receiving support. If they have not
begun to offer service and have no
E:\FR\FM\07JYR2.SGM
07JYR2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
customers at this time, they will be able
to indicate this in the report.
137. Finally, the Commission will
require that in each section 54.313
annual report that is filed by Phase II
recipients during their support term,
they will be required to certify that they
have available funds for all project costs
that will exceed the amount of support
that will be received from the
authorization stemming from the Phase
II auction for the next calendar year.
This will give the Commission
assurance that Phase II recipients have
obtained enough funding to meet their
Phase II obligations and also underscore
Phase II recipients’ obligation to
conduct a due diligence review of their
44433
finances to ensure that they can meet
their obligations.
138. The Commission provides as an
example, an illustrative chart of the
reporting requirements for a bidder in
the baseline performance tier that begins
to receive support in September 1, 2017
and takes the entire six years to buildout its network:
Support term year
Reporting obligations and deadlines
Year One: Sept. 1, 2017 to Aug. 31,
2018.
Due by July 1, 2018: FCC Form 481, including capex spent if any (reporting on 2017) and available
funds certification (pertaining to 2019).
Due by Oct. 31, 2018: First location list indicating locations where service meeting the Commission’s
requirements at time of authorization is already offered and locations where service newly offered in
the first support year.
Due by July 1, 2019: FCC Form 481, including capex spent (reporting on 2018) and available funds
certification (pertaining to 2020).
Due by Oct. 31, 2019: List of locations where service newly offered in second support year.
Due by July 1, 2020: FCC Form 481, including capex spent (reporting on 2019) and available funds
certification (pertaining to 2021).
Due by Oct. 30, 2020: List of locations where service newly offered in third support year; 40% build-out
certification.
Due by July 1, 2021: FCC Form 481, including capex spent (reporting on 2020) and available funds
certification (pertaining to 2022).
Due by Oct. 30, 2021: List of locations where service newly offered in fourth support year; 60% buildout certification.
Due by July 1, 2022: FCC Form 481, including capex spent (reporting on 2021) and available funds
certification (pertaining to 2023).
Due by Oct. 31, 2022: List of locations where service newly offered in fifth support year; 80% build-out
certification.
Due by July 1, 2023: FCC Form 481, including capex spent (reporting on 2022) and available funds
certification (pertaining to 2024).
Due by Oct. 31, 2023: List of locations where service newly offered in sixth support year; 100% buildout certification.
Due by following July 1: FCC Form 481, including capex spent and service performance requirement
certification (reporting on the previous calendar year) and available funds certification (pertaining to
next calendar year; not required in annual report due the July 1st after the support term has ended).
Year Two: Sept. 1, 2018 to Aug. 31,
2019.
Year Three: Sept. 1, 2019 to Aug. 31,
2020.
Year Four: Sept. 1, 2020 to Aug. 31,
2021.
Year Five: Sept. 1, 2021 to Aug. 31,
2022.
Year Six: Sept. 1, 2022 to Aug. 31,
2023.
sradovich on DSK3GDR082PROD with RULES2
All Subsequent Years ...........................
139. The Commission directs USAC to
review, for these entities that are
authorized to receive support after the
Phase II competitive bidding process,
compliance with deployment
obligations and the Commission’s
public interest obligations at the state
level—that is, whether the carrier is
meeting interim and final service
obligations for the total number of
locations required for each state. As the
Commission concluded in the December
2014 Connect America Order,
conducting compliance reviews at the
state level would be less
administratively burdensome for the
Commission, USAC, and recipients of
Phase II support than at the census
block level.
140. Finally, the Commission clarifies
that price cap carriers that choose to use
Phase II model-based support to deploy
to locations in extremely high-cost
census blocks may not use Phase II
model-based support to serve extremely
high-cost census blocks that an
authorized Phase II auction recipient
will be required to serve. In the USF/ICC
Transformation Order, the Commission
gave price cap carriers the flexibility to
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
use Phase II model-based support to
serve census blocks that are above the
extremely high-cost threshold to meet
their commitment to serve a set number
of locations. When the Commission
provided this flexibility to meet
deployment obligations, it did not
contemplate funding two different
carriers to deploy broadband to the
same extremely high cost location.
Permitting price cap carriers to use
model-based support to deploy to such
extremely high-cost census blocks
would be inconsistent with the
Commission’s objective for Phase II of
targeting support in the most efficient
and effective manner. Accordingly, once
a Phase II winning bidder has been
authorized to begin receiving Phase II
support to serve an extremely high-cost
census block, a price cap carrier will not
be able to count locations that are
located in that census block towards its
remaining Phase II model-based support
service milestones.
141. The Commission directs USAC to
review the geocoded locations lists that
are submitted by the price cap carriers
regarding deployment to verify that no
extremely high-cost locations are
PO 00000
Frm 00021
Fmt 4701
Sfmt 4700
located in census blocks where a Phase
II auction recipient has been authorized
to begin receiving support. In other
words, as of the date of authorization for
another entity to serve a census block,
that census block is no longer eligible
for substitution of locations. If USAC
determines that a price cap carrier has
included such locations in its list to
count towards its build-out obligation,
that price cap carrier will be deemed to
have not met the relevant Phase II
model-based support build-out
obligation and will be subject to the
applicable non-compliance measures.
142. As ETCs comply with the new
public interest and reporting
requirements and broadband public
interest obligations in this Order, the
Commission will continue to monitor
their behavior and performance. Based
on that experience, the Commission
may make additional modifications as
necessary to its reporting requirements.
B. Section 54.314 Certifications
143. Discussion. The Commission
clarifies that for the section 54.314
certification, using high-cost support
(i.e. Connect America Fund support) for
E:\FR\FM\07JYR2.SGM
07JYR2
44434
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
sradovich on DSK3GDR082PROD with RULES2
the intended purpose in a given
calendar year may include setting aside
the high-cost support received but not
spent in that calendar year in an
account dedicated specifically for
upgrades necessary to meet the relevant
high-cost requirements. All high-cost
recipients should be prepared to
demonstrate to a state making such a
certification on their behalf, or to the
Commission or USAC upon request, that
any unspent high-cost support was kept
in such an account until it was spent.
144. The Commission previously has
recognized that the first task for any
major network upgrade is to complete
an overall plan and then undertake
detailed engineering analyses in the
field to plan the construction of
particular routes. Depending on the
timing of funding authorization for
recipients of high-cost support, it is
possible that in the initial year of
support, an ETC may not be able to
spend the funding that is disbursed.
Moreover, with any network upgrade,
construction over the course of the
deployment timetable will be dependent
on the availability of necessary
equipment, fiber, and construction
crews. In some cases, weather may
require construction projects to be
deferred over the winter into the
following spring. The Commission also
has acknowledged that a price cap
carrier may not deploy new facilities in
every state in every year of the Phase II
term. Accordingly, the Commission
concludes that it is permissible for highcost recipients to certify or have the
relevant states certify on their behalf
that they have used their support for its
intended purpose if they have set aside
a portion or all of the high-cost support
in a given year in an account dedicated
to future high-cost improvements, as
described above.
C. Measures for Non-Compliance
145. Discussion. The Commission
adopts the process by which the
Wireline Competition Bureau or the
Wireless Telecommunications Bureau
will authorize USAC to draw on the
letter of credit to recover all of the
support that has been disbursed in the
event that the Phase II competitive
bidding process recipient does not meet
the relevant service milestones. In the
December 2014 Connect America Order,
the Commission determined that USAC
would recover support from ETCs
associated with their compliance gap in
three separate circumstances. If after six
months, the ETC fails to repay in full,
either the Wireline Competition Bureau
or the Wireless Telecommunications
Bureau will issue a letter authorizing
USAC to draw on the letter of credit to
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
recover 100 percent of the support that
has been disbursed to the ETC.
146. First, for interim milestones, if
the ETC has a compliance gap of 50
percent or more of the number of
locations that the ETC is required to
offer service to by the relevant interim
milestone (i.e., Tier 4 status), USAC will
withhold 50 percent of the ETC’s
monthly support for that state, and the
ETC will be required to file quarterly
reports. If, after having 50 percent of
support withheld for six months, the
ETC has not reported that it has a
compliance gap of less than 50 percent
(i.e., the ETC is eligible for Tier 3 or
lower or is in compliance), USAC will
withhold 100 percent of the ETC’s
support for the state and will commence
recovery action for a percentage of
support that is equal to the ETC’s
compliance gap plus 10 percent of the
ETC’s support that has been paid to that
point. At this point, this ETC will have
six months to pay back the amount of
support that USAC seeks to recover. If
at the end of six months the ETC has not
fully paid back the support, the
Wireline Competition Bureau or the
Wireless Telecommunications Bureau
will issue a letter to that effect and
USAC will draw on the letter of credit
to recover all of the support that has
been disbursed to the ETC. If at any
point during the six-year period for
deployment the ETC reports that it is
eligible for Tier 1 status, the ETC will
have its support fully restored including
any support that had been withheld,
USAC will repay any funds that were
recovered, and the ETC will move to
Tier 1 status.
147. Second, if an ETC misses the
final milestone, it must identify by what
percentage the milestone has been
missed. It will then have 12 months
from that date to come into full
compliance with the milestone. If it
does not come into full compliance
within 12 months, the Wireline
Competition Bureau or the Wireless
Telecommunications Bureau will issue
a letter and USAC will recover an
amount of support that is equal to 1.89
times the average amount of support per
location received in the state over the
six-year period for the relevant number
of locations the ETC has failed to offer
service to, plus 10 percent of the ETC’s
total Phase II support received in the
state over the six-year period for
deployment. At this point, the ETC will
have six months to repay the support
USAC seeks to recover. If at the end of
six months the ETC has not fully paid
back the support, the Wireline
Competition Bureau or the Wireless
Telecommunications Bureau will issue
a letter to that effect, and USAC will
PO 00000
Frm 00022
Fmt 4701
Sfmt 4700
draw on the letter of credit to recover all
of the support that has been disbursed
to the ETC.
148. Third, if after the build-out has
been verified and the ETC closes its
letter of credit it is determined that the
ETC does not have sufficient evidence
to demonstrate that it is offering service
to the total number of required
locations, USAC will recover an amount
of support that is equal to 1.89 times the
average amount of support per location
received in the state over the six-year
period for the relevant number of
locations for which the ETC has failed
to produce sufficient evidence, plus 10
percent of the ETC’s total support
received in that state over the six-year
time period. Because the ETC’s buildout will have already been verified
before it may close its letter of credit,
the Commission does not find it
necessary to require that the ETC
continue to keep its letter of credit open
in the event that the ETC does not repay
the Commission after it is found to be
lacking evidence. Instead, the
Commission notes that if the ETC does
not repay the Commission after six
months it may be subject to additional
non-compliance measures, including
forfeitures.
149. The Commission concludes that
drawing on the letter of credit in the
event that the ETC fails to repay the
support that USAC is instructed to
recover will ensure that the Commission
will be able to recover the support in the
event that the ETC is unable to pay. The
Commission notes that through the
support reduction framework the
Commission adopted in the December
2014 Connect America Order, the ETC
will have a number of opportunities to
cure before the Commission will seek to
recover the support that is associated
with the compliance gap. And the
Commission will only recover 100
percent of the support that has been
disbursed in those cases where the ETC
is unable to repay the support
associated with its compliance gap.
Because an ETC that is unable to repay
the support is also unlikely to be able
to meet its obligations to use the support
to offer service meeting the
Commission’s requirements, recovering
100 percent of the support will allow
the Commission to re-award the support
through an alternative mechanism to an
ETC that will be able to meet its
obligations.
150. Finally, the Commission notes
that Phase II auction recipients may also
be subject to other sanctions for noncompliance with the terms and
conditions of high-cost funding,
including, but not limited to potential
revocation of ETC designation and
E:\FR\FM\07JYR2.SGM
07JYR2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
sradovich on DSK3GDR082PROD with RULES2
suspension or debarment. Phase II
auction recipients will also be subject to
any non-compliance measures that are
adopted in conjunction with a
methodology for high-cost recipients to
measure and report speed and latency
performance to fixed locations.
VIII. Remote Areas Fund
151. Discussion. While the
Commission previously decided to
include census blocks that are deemed
to be extremely high-cost in the Phase
II auction, it recognizes that not all of
those areas will receive bids. Moreover,
the Commission recognizes that there
may not be winning bidders for all of
the high-cost census blocks in the
declined states that are included in the
Phase II auction. At the same time, the
Commission also recognizes that in the
intervening period, it is possible that
some areas will become served through
market forces and will not require
ongoing support from the universal
service fund. The Commission now
adopts a framework and rules herein to
ensure the Commission moves
expeditiously to implement a Remote
Areas Fund for those areas that remain
unserved with broadband after the
Phase II auction. These areas will
comprise, in effect, the ‘‘remote areas’’
where the Commission will target
Remote Areas Fund support. The
Commission’s objective is to bring
broadband to these unserved areas
across the country as soon as possible.
152. The Commission concludes that
it will award support for the Remote
Areas Fund through a competitive
bidding process, with providers
receiving support to serve defined areas
that remain unserved with broadband
service meeting the Commission’s
public interest obligations, determined
based on the most recent publicly
available FCC Form 477 data available
prior to the opening of the filing
window for short-form applications. For
several reasons, the Commission
concludes that it will be most efficient
to award support from the Remote Areas
Fund to serve a designated area through
a competitive bidding process, rather
than as a portable consumer subsidy.
The Commission expects that the
competitive process will drive down the
amount of support awarded to serve
these remote locations, enabling the
Commission to utilize its Remote Areas
funding most effectively. The
Commission also believes this approach
will best provide incentives for
providers to deploy broadband-capable
infrastructure in these remote areas. The
Commission recognizes the need for
service providers to have some
assurance that there will be sufficient
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
demand in these remote areas to warrant
making the necessary investments to
extend service, and by awarding support
to serve a given area, bidders will be
able to aggregate demand sufficiently to
warrant the investments necessary to
serve such areas. The Commission notes
that a number of bidders in the rural
broadband experiments were ultimately
authorized to begin receiving support in
category 3 which was limited to bids for
only extremely high-cost census blocks,
suggesting that these bidders were able
to put together bids that enabled them
to make a business case to serve the
highest cost areas. Lastly, by moving
swiftly to auction support from the
Remote Areas Fund utilizing many of
the same processes and procedures
established for the Phase II auction, the
Commission will bring service to
consumers more quickly than would
likely be the case if it were to adopt an
approach that has never been
implemented to date in the high-cost
program. The Commission does not rule
out the possibility of implementing
some form of a portable consumer
subsidy at a future date, however,
should there remain areas after the
Remote Areas Fund auction that remain
unserved.
153. The areas eligible for the Remote
Areas Fund auction will generally be
those areas not subject to winning bids
in the Phase II auction that are not
served with voice and 10/1 Mbps
broadband according to the most
recently published FCC Form 477 data
that are available prior to the opening of
the expedited filing window for
applicants for the Remote Areas Fund
auction. The Commission directs the
Bureau to publish the list of eligible
areas within 60 days after the
announcement of winning bidders in
the Phase II auction. The Commission
reserves the right to make further
adjustments to the eligible areas based
on lessons learned from the Phase II
auction, however, and its progress in
implementing other Connect America
Fund reforms in the intervening period.
154. The Commission’s goal is to
commence the Remote Areas Fund
auction within a year of the close of the
Phase II Auction. The specific dates and
deadlines will be announced in a
Remote Areas Fund Auction Procedures
Public Notice after the Phase II auction.
155. The Commission intends that the
Remote Areas Fund auction will occur
as soon as feasible after the Phase II
auction, providing for a limited period
of time in between so that applicants
that may wish to participate in both
auctions may plan and prepare for the
Remote Areas auction taking into
account winning bids in the Phase II
PO 00000
Frm 00023
Fmt 4701
Sfmt 4700
44435
auction. Bidders qualified to bid in the
Phase II auction will be able
automatically to participate in this
subsequent auction without having to
file another short-form application, so
long as there is no material change in
any information filed in their Phase II
short-form application.
156. Consistent with the rules
established for the Phase II competitive
bidding process, the Commission will
not require bidders to be ETCs in order
to bid in the Remote Areas Fund
auction. Rather, they may obtain ETC
designation after being selected as a
winning bidder. The Commission finds
this will serve the public interest for the
same reasons previously stated when it
adopted these measures for Phase II.
Similarly, the Commission adopts the
same timelines for submitting proof of
ETC designation for Remote Areas Fund
winning bidders for the same reasons
stated above for the Phase II auction.
157. Similarly, the Commission
adopts rules providing for a short-form
application process to qualify entities
eligible to bid and a long-form
application to be filed by winning
bidders that are similar in substance to
the rules adopted above for the Phase II
auction. As the Commission stated
above, this approach will balance the
need to collect essential information
with administrative efficiency and will
provide the Commission with assurance
that interested participants are qualified
to meet the terms and conditions of the
Remote Areas Fund, if authorized to
receive support. The Commission
delegates authority to the Bureaus to
adjust the format and timing of the
Remote Areas Fund applications based
on experience gained with the
implementation of the Phase II auction.
The Commission’s goal is to conduct the
Remote Areas Fund auction generally
utilizing the same format and
procedures adopted for the Phase II
auction, although the Commission
recognizes that some adjustments may
need to be made.
158. As a general matter, support from
the Remote Areas Fund will be awarded
on similar terms and subject to the same
rules as Phase II support awarded
through the Phase II auction. The
Commission expects that recipients will
be subject to the same interim and final
service milestones as Phase II auction
winners, although it reserves the right to
make adjustments if necessary to
encourage auction participation.
Recipients will be subject to the same
reporting obligations as Phase II
recipients and subject to the same
measures for non-compliance. The
Commission expects, however, that it
may be necessary to relax performance
E:\FR\FM\07JYR2.SGM
07JYR2
44436
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
standards for the Remote Areas Fund.
The Commission may make further
adjustments as needed, based on what it
learns from the Phase II auction.
159. The Commission does not decide
at this time a number of issues that will
need to be resolved before it can
implement the Remote Areas Fund,
including the public interest obligations
for recipients of support, the term of
support for the Remote Areas Fund, and
whether to disburse support on a persubscriber basis or a per-location basis.
The Commission will decide those
issues once it observes the outcome of
the Phase II auction.
IX. Procedural Matters
A. Paperwork Reduction Act Analysis
160. This document contains new
information collection requirements
subject to the PRA. It will be submitted
to the Office of Management and Budget
(OMB) for review under section 3507(d)
of the PRA. OMB, the general public,
and other Federal agencies will be
invited to comment on the new
information collection requirements
contained in this proceeding. In
addition, the Commission notes that
pursuant to the Small Business
Paperwork Relief Act of 2002, it
previously sought specific comment on
how the Commission might further
reduce the information collection
burden for small business concerns with
fewer than 25 employees. The
Commission describes impacts that
might affect small businesses, which
includes most businesses with fewer
than 25 employees, in the Final
Regulatory Flexibility Analysis (FRFA)
in Appendix C, infra.
B. Congressional Review Act
161. The Commission will send a
copy of this Report and Order to
Congress and the Government
Accountability Office pursuant to the
Congressional Review Act, see 5 U.S.C.
801(a)(1)(A).
sradovich on DSK3GDR082PROD with RULES2
C. Final Regulatory Flexibility Analysis
162. As required by the Regulatory
Flexibility Act of 1980 (RFA), as
amended, an Initial Regulatory
Flexibility Analyses (IRFA) was
incorporated in the Further Notice of
Proposed Rulemaking adopted in
November 2011 (USF/ICC
Transformation FNPRM) and the
Further Notice of Proposed Rulemaking
adopted in April 2014 (April 2014
Connect America FNPRM). The
Commission sought written public
comment on the proposals in the USF/
ICC Transformation FNPRM, 76 FR
78384, December 16, 2011 and April
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
2014 Connect America FNPRM, 79 FR
39196, July 9, 2014, including comment
on the IRFAs. The Commission did not
receive any relevant comments in
response to these IRFAs. This Final
Regulatory Flexibility Analysis (FRFA)
conforms to the RFA.
1. Need for, and Objectives of, the
Report and Order
163. Over the last several years, the
Commission has engaged in a
modernization of its universal service
regime to support networks capable of
providing voice and broadband,
including developing a new forwardlooking cost model to calculate the cost
of providing service in rural and highcost areas. In 2015, 10 price cap carriers
accepted an offer of Phase II support
calculated by a cost model in exchange
for a state-level commitment to deploy
and maintain voice and broadband
service in the high-cost areas in their
respective states. With this Report and
Order (Order), the Commission now
adopts rules to implement a competitive
bidding process for Phase II of the
Connect America Fund.
164. Specifically, building on
decisions already made by the
Commission, in this Order, the
Commission:
• Adopt public interest obligations
for recipients of support awarded
through the Phase II competitive
bidding process, that will be known in
advance of the auction and that will
continue for the duration of the term of
support, recognizing that competitive
bidding is likely to be more efficient if
potential bidders know what their
performance standards will be before
bids are made. In particular, the
Commission establishes four
technology-neutral tiers of bids
available for bidding with varying speed
and usage allowances, all at reasonably
comparable rates, and for each tier will
differentiate between bids that would
commit to either lower or higher
latency.
Æ The Commission’s minimum
performance tier requires that bidders
commit to provide broadband speeds of
at least 10 Mbps downstream and 1
Mbps upstream (10/1 Mbps) and offer at
least 150 gigabytes (GB) of monthly
usage.
Æ The Commission’s baseline
performance tier requires that bidders
commit to provide at least 25 Mbps
downstream and 3 Mbps upstream (25/
3 Mbps) and offer a minimum usage
allowance of 150 GB per month, or that
reflects the average usage of a majority
of fixed broadband customers, using
Measuring Broadband America data or a
similar data source, whichever is higher.
PO 00000
Frm 00024
Fmt 4701
Sfmt 4700
Æ The Commission’s above-baseline
performance tier requires that bidders
commit to provide at least 100 Mbps
downstream and 20 Mbps upstream
(100/20 Mbps) and offer an unlimited
monthly usage allowance.
Æ The Commission’s Gigabit
performance tier requires that bidders
commit to provide at least 1 Gigabit per
second (Gbps) downstream and 500
Mbps upstream and offer an unlimited
monthly usage allowance.
Æ For each of the four tiers, bidders
will designate one of two latency
performance levels: (1) Low latency
bidders will be required to meet 95
percent or more of all peak period
measurements of network round trip
latency at or below 100 milliseconds
(ms), or (2) High latency bidders will be
required to meet 95 percent or more of
all peak period measurements of
network round trip latency at or below
750 ms and, with respect to voice
performance, demonstrate a score of
four or higher using the Mean Opinion
Score (MOS).
• Adopt the same interim service
milestones for winning bidders in the
Phase II auction as for price cap carriers
that accepted Phase II model-based
support.
• Finalize the Commission’s
decisions regarding areas eligible for the
Phase II competitive bidding process.
• Establish a budget for the Phase II
competitive bidding process of $215
million in annual support.
• Provide general guidance on
auction design, with the specific details
to be determined by the Commission at
a future date in the Auction Procedures
Public Notice, after further opportunity
for comment. The Commission will use
weights to account for the different
characteristics of service offerings that
bidders propose to offer when ranking
bids. The Commission expresses its
preference for a multi-round auction
format and for setting the minimum
biddable unit as a census block group
containing any eligible census blocks.
The Commission concludes that reserve
prices will not exceed support amounts
determined by the Connect America
Cost Model (CAM).
• Adopt a two-step application
process, similar to Commission
spectrum auctions and the Mobility
Fund Phase I and Tribal Mobility Fund
Phase I auctions. In the pre-auction
short-form application, a potential
bidder will need to establish its baseline
financial and technical capabilities in
order to be eligible to bid. In the longform review process, winning bidders
will be required to provide additional
information regarding their
qualifications. They will be required to
E:\FR\FM\07JYR2.SGM
07JYR2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
obtain an acceptable letter of credit and
designation as an eligible
telecommunications carrier (ETC) before
funding is authorized.
• Establish a baseline forfeiture for
bidders that default before funding
authorization.
• Establish a 180-day post-auction
deadline for winning bidders to submit
proof of their ETC designation during
long-form review and forbear from the
section 214(e)(5) service area
conformance requirements.
• Adopt reporting requirements that
will enable the Commission to monitor
recipients’ progress in meeting their
interim deployment obligations, and a
process by which the Wireline
Competition Bureau (Bureau) or the
Wireless Telecommunications Bureau
will authorize the Universal Service
Administrative Company (USAC) to
draw on a letter of credit in the event
of performance default.
• Adopt rules to establish the
framework for the Remote Areas Fund,
which will award support through a
competitive bidding process to occur
expeditiously after conclusion of the
Phase II auction.
2. Summary of Significant Issues Raised
by Public Comments in Response to the
IRFA
165. There were no relevant
comments filed that specifically
addressed the rules and policies
proposed in the USF/ICC
Transformation FNPRM IRFA and the
April 2014 Connect America FNPRM,
IRFA.
sradovich on DSK3GDR082PROD with RULES2
3. Response to Comments by the Chief
Counsel for Advocacy of the Small
Business Administration
166. Pursuant to the Small Business
Jobs Act of 2010, which amended the
RFA, the Commission is required to
respond to any comments filed by the
Chief Counsel of the Small Business
Administration (SBA), and to provide a
detailed statement of any change made
to the proposed rule(s) as a result of
those comments.
167. The Chief Counsel did not file
any comments in response to the
proposed rule(s) in this proceeding.
4. Description and Estimate of the
Number of Small Entities to Which the
Rules Will Apply
168. The RFA directs agencies to
provide a description of, and where
feasible, an estimate of the number of
small entities that may be affected by
the rules adopted herein. The RFA
generally defines the term ‘‘small
entity’’ as having the same meaning as
the terms ‘‘small business,’’ ‘‘small
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
organization,’’ and ‘‘small governmental
jurisdiction.’’ In addition, the term
‘‘small business’’ has the same meaning
as the term ‘‘small-business concern’’
under the Small Business Act. A ‘‘smallbusiness concern’’ is one which: (1) Is
independently owned and operated; (2)
is not dominant in its field of operation;
and (3) satisfies any additional criteria
established by the SBA.
169. Small Businesses. Nationwide,
there are a total of approximately 28.2
million small businesses, according to
the SBA.
170. Wired Telecommunications
Carriers. The SBA has developed a
small business size standard for Wired
Telecommunications Carriers, which
consists of all such companies having
1,500 or fewer employees. According to
Census Bureau data for 2007, there were
3,188 firms in this category, total, that
operated for the entire year. Of this
total, 3,144 firms had employment of
999 or fewer employees, and 44 firms
had employment of 1,000 employees or
more. Thus, under this size standard,
the majority of firms can be considered
small.
171. Local Exchange Carriers (LECs).
Neither the Commission nor the SBA
has developed a size standard for small
businesses specifically applicable to
local exchange services. The closest
applicable size standard under SBA
rules is for Wired Telecommunications
Carriers. Under that size standard, such
a business is small if it has 1,500 or
fewer employees. According to
Commission data, 1,307 carriers
reported that they were incumbent local
exchange service providers. Of these
1,307 carriers, an estimated 1,006 have
1,500 or fewer employees and 301 have
more than 1,500 employees.
Consequently, the Commission
estimates that most providers of local
exchange service are small entities that
may be affected by the rules and
policies in the Order.
172. Incumbent Local Exchange
Carriers (incumbent LECs). Neither the
Commission nor the SBA has developed
a size standard for small businesses
specifically applicable to incumbent
local exchange services. The closest
applicable size standard under SBA
rules is for Wired Telecommunications
Carriers. Under that size standard, such
a business is small if it has 1,500 or
fewer employees. According to
Commission data, 1,307 carriers
reported that they were incumbent local
exchange service providers. Of these
1,307 carriers, an estimated 1,006 have
1,500 or fewer employees and 301 have
more than 1,500 employees.
Consequently, the Commission
estimates that most providers of
PO 00000
Frm 00025
Fmt 4701
Sfmt 4700
44437
incumbent local exchange service are
small businesses that may be affected by
rules adopted pursuant to the Order.
173. The Commission has included
small incumbent LECs in this present
RFA analysis. As noted above, a ‘‘small
business’’ under the RFA is one that,
inter alia, meets the pertinent small
business size standard (e.g., a telephone
communications business having 1,500
or fewer employees), and ‘‘is not
dominant in its field of operation.’’ The
SBA’s Office of Advocacy contends that,
for RFA purposes, small incumbent
LECs are not dominant in their field of
operation because any such dominance
is not ‘‘national’’ in scope. The
Commission has therefore included
small incumbent LECs in this RFA
analysis, although it emphasizes that
this RFA action has no effect on
Commission analyses and
determinations in other, non-RFA,
contexts.
174. Competitive Local Exchange
Carriers (competitive LECs), Competitive
Access Providers (CAPs), Shared-Tenant
Service Providers, and Other Local
Service Providers. Neither the
Commission nor the SBA has developed
a small business size standard
specifically for these service providers.
The appropriate size standard under
SBA rules is for the category Wired
Telecommunications Carriers. Under
that size standard, such a business is
small if it has 1,500 or fewer employees.
According to Commission data, 1,442
carriers reported that they were engaged
in the provision of either competitive
local exchange services or competitive
access provider services. Of these 1,442
carriers, an estimated 1,256 have 1,500
or fewer employees and 186 have more
than 1,500 employees. In addition, 17
carriers have reported that they are
Shared-Tenant Service Providers, and
all 17 are estimated to have 1,500 or
fewer employees. In addition, 72
carriers have reported that they are
Other Local Service Providers. Of the
72, seventy have 1,500 or fewer
employees and two have more than
1,500 employees. Consequently, the
Commission estimates that most
providers of competitive local exchange
service, competitive access providers,
Shared-Tenant Service Providers, and
Other Local Service Providers are small
entities that may be affected by rules
adopted pursuant to the Order.
175. Interexchange Carriers (IXCs).
Neither the Commission nor the SBA
has developed a size standard for small
businesses specifically applicable to
interexchange services. The closest
applicable size standard under SBA
rules is for Wired Telecommunications
Carriers. Under that size standard, such
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44438
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
a business is small if it has 1,500 or
fewer employees. According to
Commission data, 359 companies
reported that their primary
telecommunications service activity was
the provision of interexchange services.
Of these 359 companies, an estimated
317 have 1,500 or fewer employees and
42 have more than 1,500 employees.
Consequently, the Commission
estimates that the majority of
interexchange service providers are
small entities that may be affected by
rules adopted pursuant to the Order.
176. Prepaid Calling Card Providers.
Neither the Commission nor the SBA
has developed a small business size
standard specifically for prepaid calling
card providers. The appropriate size
standard under SBA rules is for the
category Telecommunications Resellers.
Under that size standard, such a
business is small if it has 1,500 or fewer
employees. According to Commission
data, 193 carriers have reported that
they are engaged in the provision of
prepaid calling cards. Of these, the
Commission estimates that all 193 have
1,500 or fewer employees and none
have more than 1,500 employees.
Consequently, the Commission
estimates that the majority of prepaid
calling card providers are small entities
that may be affected by rules adopted
pursuant to the Order.
177. Local Resellers. The SBA has
developed a small business size
standard for the category of
Telecommunications Resellers. Under
that size standard, such a business is
small if it has 1,500 or fewer employees.
According to Commission data, 213
carriers have reported that they are
engaged in the provision of local resale
services. Of these, an estimated 211
have 1,500 or fewer employees and two
have more than 1,500 employees.
Consequently, the Commission
estimates that the majority of local
resellers are small entities that may be
affected by rules adopted pursuant to
the Order.
178. Toll Resellers. The SBA has
developed a small business size
standard for the category of
Telecommunications Resellers. Under
that size standard, such a business is
small if it has 1,500 or fewer employees.
According to Commission data, 881
carriers have reported that they are
engaged in the provision of toll resale
services. Of these, an estimated 857
have 1,500 or fewer employees and 24
have more than 1,500 employees.
Consequently, the Commission
estimates that the majority of toll
resellers are small entities that may be
affected by rules adopted pursuant to
the Order.
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
179. Other Toll Carriers. Neither the
Commission nor the SBA has developed
a size standard for small businesses
specifically applicable to Other Toll
Carriers. This category includes toll
carriers that do not fall within the
categories of interexchange carriers,
operator service providers, prepaid
calling card providers, satellite service
carriers, or toll resellers. The closest
applicable size standard under SBA
rules is for Wired Telecommunications
Carriers. Under that size standard, such
a business is small if it has 1,500 or
fewer employees. According to
Commission data, 284 companies
reported that their primary
telecommunications service activity was
the provision of other toll carriage. Of
these, an estimated 279 have 1,500 or
fewer employees and five have more
than 1,500 employees. Consequently,
the Commission estimates that most
Other Toll Carriers are small entities
that may be affected by the rules and
policies adopted pursuant to the Order.
180. 800 and 800-Like Service
Subscribers. Neither the Commission
nor the SBA has developed a small
business size standard specifically for
800 and 800-like service (toll free)
subscribers. The appropriate size
standard under SBA rules is for the
category Telecommunications Resellers.
Under that size standard, such a
business is small if it has 1,500 or fewer
employees. The most reliable source of
information regarding the number of
these service subscribers appears to be
data the Commission collects on the
800, 888, 877, and 866 numbers in use.
According to the Commission’s data, as
of September 2009, the number of 800
numbers assigned was 7,860,000; the
number of 888 numbers assigned was
5,588,687; the number of 877 numbers
assigned was 4,721,866; and the number
of 866 numbers assigned was 7,867,736.
The Commission does not have data
specifying the number of these
subscribers that are not independently
owned and operated or have more than
1,500 employees, and thus are unable at
this time to estimate with greater
precision the number of toll free
subscribers that would qualify as small
businesses under the SBA size standard.
Consequently, the Commission
estimates that there are 7,860,000 or
fewer small entity 800 subscribers;
5,588,687 or fewer small entity 888
subscribers; 4,721,866 or fewer small
entity 877 subscribers; and 7,867,736 or
fewer small entity 866 subscribers.
181. Wireless Telecommunications
Carriers (Except Satellite). Since 2007,
the SBA has recognized wireless firms
within this new, broad, economic
census category. Prior to that time, such
PO 00000
Frm 00026
Fmt 4701
Sfmt 4700
firms were within the now-superseded
categories of Paging and Cellular and
Other Wireless Telecommunications.
Under the present and prior categories,
the SBA has deemed a wireless business
to be small if it has 1,500 or fewer
employees. For this category, census
data for 2007 show that there were 1,383
firms that operated for the entire year.
Of this total, 1,368 firms had
employment of 999 or fewer employees
and 15 had employment of 1000
employees or more. Similarly, according
to Commission data, 413 carriers
reported that they were engaged in the
provision of wireless telephony,
including cellular service, Personal
Communications Service (PCS), and
Specialized Mobile Radio (SMR)
Telephony services. Of these, an
estimated 261 have 1,500 or fewer
employees and 152 have more than
1,500 employees. Consequently, the
Commission estimates that
approximately half or more of these
firms can be considered small. Thus,
using available data, the Commission
estimates that the majority of wireless
firms can be considered small.
182. Broadband Personal
Communications Service. The
broadband personal communications
service (PCS) spectrum is divided into
six frequency blocks designated A
through F, and the Commission has held
auctions for each block. The
Commission defined ‘‘small entity’’ for
Blocks C and F as an entity that has
average gross revenues of $40 million or
less in the three previous calendar
years. For Block F, an additional
classification for ‘‘very small business’’
was added and is defined as an entity
that, together with its affiliates, has
average gross revenues of not more than
$15 million for the preceding three
calendar years. These standards
defining ‘‘small entity’’ in the context of
broadband PCS auctions have been
approved by the SBA. No small
businesses, within the SBA-approved
small business size standards bid
successfully for licenses in Blocks A
and B. There were 90 winning bidders
that qualified as small entities in the
Block C auctions. A total of 93 small
and very small business bidders won
approximately 40 percent of the 1,479
licenses for Blocks D, E, and F. In 1999,
the Commission re-auctioned 347 C, E,
and F Block licenses. There were 48
small business winning bidders. In
2001, the Commission completed the
auction of 422 C and F Broadband PCS
licenses in Auction 35. Of the 35
winning bidders in this auction, 29
qualified as ‘‘small’’ or ‘‘very small’’
businesses. Subsequent events,
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
concerning Auction 35, including
judicial and agency determinations,
resulted in a total of 163 C and F Block
licenses being available for grant. In
2005, the Commission completed an
auction of 188 C block licenses and 21
F block licenses in Auction 58. There
were 24 winning bidders for 217
licenses. Of the 24 winning bidders, 16
claimed small business status and won
156 licenses. In 2007, the Commission
completed an auction of 33 licenses in
the A, C, and F Blocks in Auction 71.
Of the 14 winning bidders, six were
designated entities. In 2008, the
Commission completed an auction of 20
Broadband PCS licenses in the C, D, E
and F block licenses in Auction 78.
183. Advanced Wireless Services. In
2008, the Commission conducted the
auction of Advanced Wireless Services
(‘‘AWS’’) licenses. This auction, which
as designated as Auction 78, offered 35
licenses in the AWS 1710–1755 MHz
and 2110–2155 MHz bands (AWS–1).
The AWS–1 licenses were licenses for
which there were no winning bids in
Auction 66. That same year, the
Commission completed Auction 78. A
bidder with attributed average annual
gross revenues that exceeded $15
million and did not exceed $40 million
for the preceding three years (‘‘small
business’’) received a 15 percent
discount on its winning bid. A bidder
with attributed average annual gross
revenues that did not exceed $15
million for the preceding three years
(‘‘very small business’’) received a 25
percent discount on its winning bid. A
bidder that had combined total assets of
less than $500 million and combined
gross revenues of less than $125 million
in each of the last two years qualified
for entrepreneur status. Four winning
bidders that identified themselves as
very small businesses won 17 licenses.
Three of the winning bidders that
identified themselves as a small
business won five licenses.
Additionally, one other winning bidder
that qualified for entrepreneur status
won 2 licenses.
184. Narrowband Personal
Communications Services. In 1994, the
Commission conducted an auction for
Narrowband PCS licenses. A second
auction was also conducted later in
1994. For purposes of the first two
Narrowband PCS auctions, ‘‘small
businesses’’ were entities with average
gross revenues for the prior three
calendar years of $40 million or less.
Through these auctions, the
Commission awarded a total of 41
licenses, 11 of which were obtained by
four small businesses. To ensure
meaningful participation by small
business entities in future auctions, the
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
Commission adopted a two-tiered small
business size standard in the
Narrowband PCS Second Report and
Order, 65 FR 35843, June 6, 2000. A
‘‘small business’’ is an entity that,
together with affiliates and controlling
interests, has average gross revenues for
the three preceding years of not more
than $40 million. A ‘‘very small
business’’ is an entity that, together with
affiliates and controlling interests, has
average gross revenues for the three
preceding years of not more than $15
million. The SBA has approved these
small business size standards. A third
auction was conducted in 2001. Here,
five bidders won 317 (Metropolitan
Trading Areas and nationwide) licenses.
Three of these claimed status as a small
or very small entity and won 311
licenses.
185. Paging (Private and Common
Carrier). In the Paging Third Report and
Order, 64 FR 33762, June 24, 1999, the
Commission developed a small business
size standard for ‘‘small businesses’’ and
‘‘very small businesses’’ for purposes of
determining their eligibility for special
provisions such as bidding credits and
installment payments. A ‘‘small
business’’ is an entity that, together with
its affiliates and controlling principals,
has average gross revenues not
exceeding $15 million for the preceding
three years. Additionally, a ‘‘very small
business’’ is an entity that, together with
its affiliates and controlling principals,
has average gross revenues that are not
more than $3 million for the preceding
three years. The SBA has approved
these small business size standards.
According to Commission data, 291
carriers have reported that they are
engaged in Paging or Messaging Service.
Of these, an estimated 289 have 1,500 or
fewer employees, and two have more
than 1,500 employees. Consequently,
the Commission estimates that the
majority of paging providers are small
entities that may be affected by the
Commission’s action. An auction of
Metropolitan Economic Area licenses
commenced on February 24, 2000, and
closed on March 2, 2000. Of the 2,499
licenses auctioned, 985 were sold. Fiftyseven companies claiming small
business status won 440 licenses. A
subsequent auction of MEA and
Economic Area (‘‘EA’’) licenses was
held in the year 2001. Of the 15,514
licenses auctioned, 5,323 were sold.
One hundred thirty-two companies
claiming small business status
purchased 3,724 licenses. A third
auction, consisting of 8,874 licenses in
each of 175 EAs and 1,328 licenses in
all but three of the 51 MEAs, was held
in 2003. Seventy-seven bidders claiming
PO 00000
Frm 00027
Fmt 4701
Sfmt 4700
44439
small or very small business status won
2,093 licenses. A fourth auction,
consisting of 9,603 lower and upper
paging band licenses was held in the
year 2010. Twenty-nine bidders
claiming small or very small business
status won 3,016 licenses.
186. 220 MHz Radio Service—Phase I
Licensees. The 220 MHz service has
both Phase I and Phase II licenses. Phase
I licensing was conducted by lotteries in
1992 and 1993. There are approximately
1,515 such non-nationwide licensees
and four nationwide licensees currently
authorized to operate in the 220 MHz
band. The Commission has not
developed a small business size
standard for small entities specifically
applicable to such incumbent 220 MHz
Phase I licensees. To estimate the
number of such licensees that are small
businesses, the Commission applies the
small business size standard under the
SBA rules applicable to Wireless
Telecommunications Carriers (except
Satellite). Under this category, the SBA
deems a wireless business to be small if
it has 1,500 or fewer employees. The
Commission estimates that nearly all
such licensees are small businesses
under the SBA’s small business size
standard that may be affected by rules
adopted pursuant to the Order.
187. 220 MHz Radio Service—Phase II
Licensees. The 220 MHz service has
both Phase I and Phase II licenses. The
Phase II 220 MHz service is subject to
spectrum auctions. In the 220 MHz
Third Report and Order, 62 FR 15978,
April 3, 1997, the Commission adopted
a small business size standard for
‘‘small’’ and ‘‘very small’’ businesses for
purposes of determining their eligibility
for special provisions such as bidding
credits and installment payments. This
small business size standard indicates
that a ‘‘small business’’ is an entity that,
together with its affiliates and
controlling principals, has average gross
revenues not exceeding $15 million for
the preceding three years. A ‘‘very small
business’’ is an entity that, together with
its affiliates and controlling principals,
has average gross revenues that do not
exceed $3 million for the preceding
three years. The SBA has approved
these small business size standards.
Auctions of Phase II licenses
commenced on September 15, 1998, and
closed on October 22, 1998. In the first
auction, 908 licenses were auctioned in
three different-sized geographic areas:
Three nationwide licenses, 30 Regional
Economic Area Group (EAG) Licenses,
and 875 Economic Area (EA) Licenses.
Of the 908 licenses auctioned, 693 were
sold. Thirty-nine small businesses won
licenses in the first 220 MHz auction.
The second auction included 225
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44440
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
licenses: 216 EA Licenses and 9 EAG
licenses. Fourteen companies claiming
small business status won 158 licenses.
188. Specialized Mobile Radio. The
Commission awards small business
bidding credits in auctions for
Specialized Mobile Radio (‘‘SMR’’)
geographic area licenses in the 800 MHz
and 900 MHz bands to entities that had
revenues of no more than $15 million in
each of the three previous calendar
years. The Commission awards very
small business bidding credits to
entities that had revenues of no more
than $3 million in each of the three
previous calendar years. The SBA has
approved these small business size
standards for the 800 MHz and 900 MHz
SMR Services. The Commission has
held auctions for geographic area
licenses in the 800 MHz and 900 MHz
bands. The 900 MHz SMR auction was
completed in 1996. Sixty bidders
claiming that they qualified as small
businesses under the $15 million size
standard won 263 geographic area
licenses in the 900 MHz SMR band. The
800 MHz SMR auction for the upper 200
channels was conducted in 1997. Ten
bidders claiming that they qualified as
small businesses under the $15 million
size standard won 38 geographic area
licenses for the upper 200 channels in
the 800 MHz SMR band. A second
auction for the 800 MHz band was
conducted in 2002 and included 23 BEA
licenses. One bidder claiming small
business status won five licenses.
189. The auction of the 1,053 800
MHz SMR geographic area licenses for
the General Category channels was
conducted in 2000. Eleven bidders won
108 geographic area licenses for the
General Category channels in the 800
MHz SMR band qualified as small
businesses under the $15 million size
standard. In an auction completed in
2000, a total of 2,800 Economic Area
licenses in the lower 80 channels of the
800 MHz SMR service were awarded. Of
the 22 winning bidders, 19 claimed
small business status and won 129
licenses. Thus, combining all three
auctions, 40 winning bidders for
geographic licenses in the 800 MHz
SMR band claimed status as small
business.
190. In addition, there are numerous
incumbent site-by-site SMR licensees
and licensees with extended
implementation authorizations in the
800 and 900 MHz bands. The
Commission does not know how many
firms provide 800 MHz or 900 MHz
geographic area SMR pursuant to
extended implementation
authorizations, nor how many of these
providers have annual revenues of no
more than $15 million. One firm has
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
over $15 million in revenues. In
addition, the Commission does not
know how many of these firms have
1,500 or fewer employees. The
Commission assumes, for purposes of
this analysis, that all of the remaining
existing extended implementation
authorizations are held by small
entities, as that small business size
standard is approved by the SBA.
191. Broadband Radio Service and
Educational Broadband Service.
Broadband Radio Service systems,
previously referred to as Multipoint
Distribution Service (‘‘MDS’’) and
Multichannel Multipoint Distribution
Service (‘‘MMDS’’) systems, and
‘‘wireless cable,’’ transmit video
programming to subscribers and provide
two-way high speed data operations
using the microwave frequencies of the
Broadband Radio Service (‘‘BRS’’) and
Educational Broadband Service (‘‘EBS’’)
(previously referred to as the
Instructional Television Fixed Service
(‘‘ITFS’’)). In connection with the 1996
BRS auction, the Commission
established a small business size
standard as an entity that had annual
average gross revenues of no more than
$40 million in the previous three
calendar years. The BRS auctions
resulted in 67 successful bidders
obtaining licensing opportunities for
493 Basic Trading Areas (‘‘BTAs’’). Of
the 67 auction winners, 61 met the
definition of a small business. BRS also
includes licensees of stations authorized
prior to the auction. At this time, the
Commission estimates that of the 61
small business BRS auction winners, 48
remain small business licensees. In
addition to the 48 small businesses that
hold BTA authorizations, there are
approximately 392 incumbent BRS
licensees that are considered small
entities. After adding the number of
small business auction licensees to the
number of incumbent licensees not
already counted, the Commission finds
that there are currently approximately
440 BRS licensees that are defined as
small businesses under either the SBA
or the Commission’s rules. The
Commission has adopted three levels of
bidding credits for BRS: (i) A bidder
with attributed average annual gross
revenues that exceed $15 million and do
not exceed $40 million for the preceding
three years (small business) is eligible to
receive a 15 percent discount on its
winning bid; (ii) a bidder with
attributed average annual gross revenues
that exceed $3 million and do not
exceed $15 million for the preceding
three years (very small business) is
eligible to receive a 25 percent discount
on its winning bid; and (iii) a bidder
PO 00000
Frm 00028
Fmt 4701
Sfmt 4700
with attributed average annual gross
revenues that do not exceed $3 million
for the preceding three years
(entrepreneur) is eligible to receive a 35
percent discount on its winning bid. In
2009, the Commission conducted
Auction 86, which offered 78 BRS
licenses. Auction 86 concluded with 10
bidders winning 61 licenses. Of the ten,
two bidders claimed small business
status and won 4 licenses; one bidder
claimed very small business status and
won three licenses; and two bidders
claimed entrepreneur status and won
six licenses.
192. In addition, the SBA’s Cable
Television Distribution Services small
business size standard is applicable to
EBS. There are presently 2,032 EBS
licensees. All but 100 of these licenses
are held by educational institutions.
Educational institutions are included in
this analysis as small entities. Thus, the
Commission estimates that at least 1,932
licensees are small businesses. Since
2007, Cable Television Distribution
Services have been defined within the
broad economic census category of
Wired Telecommunications Carriers;
that category is defined as follows:
‘‘This industry comprises
establishments primarily engaged in
operating and/or providing access to
transmission facilities and infrastructure
that they own and/or lease for the
transmission of voice, data, text, sound,
and video using wired
telecommunications networks.
Transmission facilities may be based on
a single technology or a combination of
technologies.’’ The SBA defines a small
business size standard for this category
as any such firms having 1,500 or fewer
employees. The SBA has developed a
small business size standard for this
category, which is: All such firms
having 1,500 or fewer employees.
According to Census Bureau data for
2007, there were a total of 955 firms in
this previous category that operated for
the entire year. Of this total, 939 firms
had employment of 999 or fewer
employees, and 16 firms had
employment of 1000 employees or
more. Thus, under this size standard,
the majority of firms can be considered
small and may be affected by rules
adopted pursuant to the Order.
193. Lower 700 MHz Band Licenses.
The Commission previously adopted
criteria for defining three groups of
small businesses for purposes of
determining their eligibility for special
provisions such as bidding credits. The
Commission defined a ‘‘small business’’
as an entity that, together with its
affiliates and controlling principals, has
average gross revenues not exceeding
$40 million for the preceding three
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
years. A ‘‘very small business’’ is
defined as an entity that, together with
its affiliates and controlling principals,
has average gross revenues that are not
more than $15 million for the preceding
three years. Additionally, the Lower 700
MHz Band had a third category of small
business status for Metropolitan/Rural
Service Area (‘‘MSA/RSA’’) licenses,
identified as ‘‘entrepreneur’’ and
defined as an entity that, together with
its affiliates and controlling principals,
has average gross revenues that are not
more than $3 million for the preceding
three years. The SBA approved these
small size standards. The Commission
conducted an auction in 2002 of 740
Lower 700 MHz Band licenses (one
license in each of the 734 MSAs/RSAs
and one license in each of the six
Economic Area Groupings (EAGs)). Of
the 740 licenses available for auction,
484 licenses were sold to 102 winning
bidders. Seventy-two of the winning
bidders claimed small business, very
small business or entrepreneur status
and won a total of 329 licenses. The
Commission conducted a second Lower
700 MHz Band auction in 2003 that
included 256 licenses: 5 EAG licenses
and 476 Cellular Market Area licenses.
Seventeen winning bidders claimed
small or very small business status and
won 60 licenses, and nine winning
bidders claimed entrepreneur status and
won 154 licenses. In 2005, the
Commission completed an auction of 5
licenses in the Lower 700 MHz Band,
designated Auction 60. There were three
winning bidders for five licenses. All
three winning bidders claimed small
business status.
194. In 2007, the Commission
reexamined its rules governing the 700
MHz band in the 700 MHz Second
Report and Order, 72 FR 48814, August
24, 2007. The 700 MHz Second Report
and Order revised the band plan for the
commercial (including Guard Band) and
public safety spectrum, adopted services
rules, including stringent build-out
requirements, an open platform
requirement on the C Block, and a
requirement on the D Block licensee to
construct and operate a nationwide,
interoperable wireless broadband
network for public safety users. An
auction of A, B and E block licenses in
the Lower 700 MHz band was held in
2008. Twenty winning bidders claimed
small business status (those with
attributable average annual gross
revenues that exceed $15 million and do
not exceed $40 million for the preceding
three years). Thirty-three winning
bidders claimed very small business
status (those with attributable average
annual gross revenues that do not
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
exceed $15 million for the preceding
three years). In 2011, the Commission
conducted Auction 92, which offered 16
Lower 700 MHz band licenses that had
been made available in Auction 73 but
either remained unsold or were licenses
on which a winning bidder defaulted.
Two of the seven winning bidders in
Auction 92 claimed very small business
status, winning a total of four licenses.
195. Upper 700 MHz Band Licenses.
In the 700 MHz Second Report and
Order, the Commission revised its rules
regarding Upper 700 MHz band
licenses. In 2008, the Commission
conducted Auction 73 in which C and
D block licenses in the Upper 700 MHz
band were available. Three winning
bidders claimed very small business
status (those with attributable average
annual gross revenues that do not
exceed $15 million for the preceding
three years).
196. 700 MHz Guard Band Licensees.
In the 700 MHz Guard Band Order, 65
FR 17594, April 4, 2000, the
Commission adopted a small business
size standard for ‘‘small businesses’’ and
‘‘very small businesses’’ for purposes of
determining their eligibility for special
provisions such as bidding credits and
installment payments. A ‘‘small
business’’ is an entity that, together with
its affiliates and controlling principals,
has average gross revenues not
exceeding $40 million for the preceding
three years. Additionally, a ‘‘very small
business’’ is an entity that, together with
its affiliates and controlling principals,
has average gross revenues that are not
more than $15 million for the preceding
three years. An auction of 52 Major
Economic Area (MEA) licenses
commenced on September 6, 2000, and
closed on September 21, 2000. Of the
104 licenses auctioned, 96 licenses were
sold to nine bidders. Five of these
bidders were small businesses that won
a total of 26 licenses. A second auction
of 700 MHz Guard Band licenses
commenced on February 13, 2001 and
closed on February 21, 2001. All eight
of the licenses auctioned were sold to
three bidders. One of these bidders was
a small business that won a total of two
licenses.
197. Cellular Radiotelephone Service.
Auction 77 was held to resolve one
group of mutually exclusive
applications for Cellular Radiotelephone
Service licenses for unserved areas in
New Mexico. Bidding credits for
designated entities were not available in
Auction 77. In 2008, the Commission
completed the closed auction of one
unserved service area in the Cellular
Radiotelephone Service, designated as
Auction 77. Auction 77 concluded with
PO 00000
Frm 00029
Fmt 4701
Sfmt 4700
44441
one provisionally winning bid for the
unserved area totaling $25,002.
198. Private Land Mobile Radio
(‘‘PLMR’’). PLMR systems serve an
essential role in a range of industrial,
business, land transportation, and
public safety activities. These radios are
used by companies of all sizes operating
in all U.S. business categories, and are
often used in support of the licensee’s
primary (non-telecommunications)
business operations. For the purpose of
determining whether a licensee of a
PLMR system is a small business as
defined by the SBA, the Commission
uses the broad census category, Wireless
Telecommunications Carriers (except
Satellite). This definition provides that
a small entity is any such entity
employing no more than 1,500 persons.
The Commission does not require PLMR
licensees to disclose information about
number of employees, so the
Commission does not have information
that could be used to determine how
many PLMR licensees constitute small
entities under this definition. The
Commission notes that PLMR licensees
generally use the licensed facilities in
support of other business activities, and
therefore, it would also be helpful to
assess PLMR licensees under the
standards applied to the particular
industry subsector to which the licensee
belongs.
199. As of March 2010, there were
424,162 PLMR licensees operating
921,909 transmitters in the PLMR bands
below 512 MHz. The Commission notes
that any entity engaged in a commercial
activity is eligible to hold a PLMR
license, and that any revised rules in
this context could therefore potentially
impact small entities covering a great
variety of industries.
200. Rural Radiotelephone Service.
The Commission has not adopted a size
standard for small businesses specific to
the Rural Radiotelephone Service. A
significant subset of the Rural
Radiotelephone Service is the Basic
Exchange Telephone Radio System
(BETRS). In the present context, the
Commission will use the SBA’s small
business size standard applicable to
Wireless Telecommunications Carriers
(except Satellite), i.e., an entity
employing no more than 1,500 persons.
There are approximately 1,000 licensees
in the Rural Radiotelephone Service,
and the Commission estimates that there
are 1,000 or fewer small entity licensees
in the Rural Radiotelephone Service that
may be affected by the rules and
policies issued herein.
201. Air-Ground Radiotelephone
Service. The Commission has not
adopted a small business size standard
specific to the Air-Ground
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44442
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
Radiotelephone Service. The
Commission will use SBA’s small
business size standard applicable to
Wireless Telecommunications Carriers
(except Satellite), i.e., an entity
employing no more than 1,500 persons.
There are approximately 100 licensees
in the Air-Ground Radiotelephone
Service, and the Commission estimates
that almost all of them qualify as small
under the SBA small business size
standard and may be affected by rules
adopted pursuant to the Order.
202. Aviation and Marine Radio
Services. Small businesses in the
aviation and marine radio services use
a very high frequency (VHF) marine or
aircraft radio and, as appropriate, an
emergency position-indicating radio
beacon (and/or radar) or an emergency
locator transmitter. The Commission has
not developed a small business size
standard specifically applicable to these
small businesses. For purposes of this
analysis, the Commission uses the SBA
small business size standard for the
category Wireless Telecommunications
Carriers (except Satellite), which is
1,500 or fewer employees. Census data
for 2007, which supersede data
contained in the 2002 Census, show that
there were 1,383 firms that operated that
year. Of those 1,383, 1,368 had fewer
than 100 employees, and 15 firms had
more than 100 employees. Most
applicants for recreational licenses are
individuals. Approximately 581,000
ship station licensees and 131,000
aircraft station licensees operate
domestically and are not subject to the
radio carriage requirements of any
statute or treaty. For purposes of the
Commission’s evaluations in this
analysis, the Commission estimates that
there are up to approximately 712,000
licensees that are small businesses (or
individuals) under the SBA standard. In
addition, between December 3, 1998
and December 14, 1998, the
Commission held an auction of 42 VHF
Public Coast licenses in the 157.1875–
157.4500 MHz (ship transmit) and
161.775–162.0125 MHz (coast transmit)
bands. For purposes of the auction, the
Commission defined a ‘‘small’’ business
as an entity that, together with
controlling interests and affiliates, has
average gross revenues for the preceding
three years not to exceed $15 million
dollars. In addition, a ‘‘very small’’
business is one that, together with
controlling interests and affiliates, has
average gross revenues for the preceding
three years not to exceed $3 million
dollars. There are approximately 10,672
licensees in the Marine Coast Service,
and the Commission estimates that
almost all of them qualify as ‘‘small’’
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
businesses under the above special
small business size standards and may
be affected by rules adopted pursuant to
the Order.
203. Fixed Microwave Services. Fixed
microwave services include common
carrier, private operational-fixed, and
broadcast auxiliary radio services. At
present, there are approximately 22,015
common carrier fixed licensees and
61,670 private operational-fixed
licensees and broadcast auxiliary radio
licensees in the microwave services.
The Commission has not created a size
standard for a small business
specifically with respect to fixed
microwave services. For purposes of
this analysis, the Commission uses the
SBA small business size standard for
Wireless Telecommunications Carriers
(except Satellite), which is 1,500 or
fewer employees. The Commission does
not have data specifying the number of
these licensees that have more than
1,500 employees, and thus is unable at
this time to estimate with greater
precision the number of fixed
microwave service licensees that would
qualify as small business concerns
under the SBA’s small business size
standard. Consequently, the
Commission estimates that there are up
to 22,015 common carrier fixed
licensees and up to 61,670 private
operational-fixed licensees and
broadcast auxiliary radio licensees in
the microwave services that may be
small and may be affected by the rules
and policies adopted herein. The
Commission notes, however, that the
common carrier microwave fixed
licensee category includes some large
entities.
204. Offshore Radiotelephone Service.
This service operates on several UHF
television broadcast channels that are
not used for television broadcasting in
the coastal areas of states bordering the
Gulf of Mexico. There are presently
approximately 55 licensees in this
service. The Commission is unable to
estimate at this time the number of
licensees that would qualify as small
under the SBA’s small business size
standard for the category of Wireless
Telecommunications Carriers (except
Satellite). Under that SBA small
business size standard, a business is
small if it has 1,500 or fewer employees.
Census data for 2007, which supersede
data contained in the 2002 Census,
show that there were 1,383 firms that
operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15
firms had more than 100 employees.
Thus, under this category and the
associated small business size standard,
the majority of firms can be considered
small.
PO 00000
Frm 00030
Fmt 4701
Sfmt 4700
205. 39 GHz Service. The Commission
created a special small business size
standard for 39 GHz licenses—an entity
that has average gross revenues of $40
million or less in the three previous
calendar years. An additional size
standard for ‘‘very small business’’ is:
An entity that, together with affiliates,
has average gross revenues of not more
than $15 million for the preceding three
calendar years. The SBA has approved
these small business size standards. The
auction of the 2,173 39 GHz licenses
began on April 12, 2000 and closed on
May 8, 2000. The 18 bidders who
claimed small business status won 849
licenses. Consequently, the Commission
estimates that 18 or fewer 39 GHz
licensees are small entities that may be
affected by rules adopted pursuant to
the Order.
206. Local Multipoint Distribution
Service. Local Multipoint Distribution
Service (LMDS) is a fixed broadband
point-to-multipoint microwave service
that provides for two-way video
telecommunications. The auction of the
986 LMDS licenses began and closed in
1998. The Commission established a
small business size standard for LMDS
licenses as an entity that has average
gross revenues of less than $40 million
in the three previous calendar years. An
additional small business size standard
for ‘‘very small business’’ was added as
an entity that, together with its affiliates,
has average gross revenues of not more
than $15 million for the preceding three
calendar years. The SBA has approved
these small business size standards in
the context of LMDS auctions. There
were 93 winning bidders that qualified
as small entities in the LMDS auctions.
A total of 93 small and very small
business bidders won approximately
277 A Block licenses and 387 B Block
licenses. In 1999, the Commission reauctioned 161 licenses; there were 32
small and very small businesses
winning that won 119 licenses.
207. 218–219 MHz Service. The first
auction of 218–219 MHz spectrum
resulted in 170 entities winning licenses
for 594 Metropolitan Statistical Area
(MSA) licenses. Of the 594 licenses, 557
were won by entities qualifying as a
small business. For that auction, the
small business size standard was an
entity that, together with its affiliates,
has no more than a $6 million net worth
and, after federal income taxes
(excluding any carry over losses), has no
more than $2 million in annual profits
each year for the previous two years. In
the 218–219 MHz Report and Order and
Memorandum Opinion and Order, 64
FR 59656, November 3, 1999, the
Commission established a small
business size standard for a ‘‘small
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
business’’ as an entity that, together
with its affiliates and persons or entities
that hold interests in such an entity and
their affiliates, has average annual gross
revenues not to exceed $15 million for
the preceding three years. A ‘‘very small
business’’ is defined as an entity that,
together with its affiliates and persons
or entities that hold interests in such an
entity and its affiliates, has average
annual gross revenues not to exceed $3
million for the preceding three years.
These size standards will be used in
future auctions of 218–219 MHz
spectrum.
208. 2.3 GHz Wireless
Communications Services. This service
can be used for fixed, mobile,
radiolocation, and digital audio
broadcasting satellite uses. The
Commission defined ‘‘small business’’
for the wireless communications
services (‘‘WCS’’) auction as an entity
with average gross revenues of $40
million for each of the three preceding
years, and a ‘‘very small business’’ as an
entity with average gross revenues of
$15 million for each of the three
preceding years. The SBA has approved
these definitions. The Commission
auctioned geographic area licenses in
the WCS service. In the auction, which
was conducted in 1997, there were
seven bidders that won 31 licenses that
qualified as very small business entities,
and one bidder that won one license
that qualified as a small business entity.
209. 1670–1675 MHz Band. An
auction for one license in the 1670–1675
MHz band was conducted in 2003. The
Commission defined a ‘‘small business’’
as an entity with attributable average
annual gross revenues of not more than
$40 million for the preceding three
years and thus would be eligible for a
15 percent discount on its winning bid
for the 1670–1675 MHz band license.
Further, the Commission defined a
‘‘very small business’’ as an entity with
attributable average annual gross
revenues of not more than $15 million
for the preceding three years and thus
would be eligible to receive a 25 percent
discount on its winning bid for the
1670–1675 MHz band license. One
license was awarded. The winning
bidder was not a small entity.
210. 3650–3700 MHz band. In March
2005, the Commission released a Report
and Order and Memorandum Opinion
and Order that provides for nationwide,
non-exclusive licensing of terrestrial
operations, utilizing contention-based
technologies, in the 3650 MHz band
(i.e., 3650–3700 MHz). As of April 2010,
more than 1270 licenses have been
granted and more than 7433 sites have
been registered. The Commission has
not developed a definition of small
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
entities applicable to 3650–3700 MHz
band nationwide, non-exclusive
licensees. However, the Commission
estimates that the majority of these
licensees are Internet Access Service
Providers (ISPs) and that most of those
licensees are small businesses.
211. 24 GHz—Incumbent Licensees.
This analysis may affect incumbent
licensees who were relocated to the 24
GHz band from the 18 GHz band, and
applicants who wish to provide services
in the 24 GHz band. For this service, the
Commission uses the SBA small
business size standard for the category
‘‘Wireless Telecommunications Carriers
(except satellite),’’ which is 1,500 or
fewer employees. To gauge small
business prevalence for these cable
services the Commission must,
however, use the most current census
data. Census data for 2007, which
supersede data contained in the 2002
Census, show that there were 1,383
firms that operated that year. Of those
1,383, 1,368 had fewer than 100
employees, and 15 firms had more than
100 employees. Thus under this
category and the associated small
business size standard, the majority of
firms can be considered small. The
Commission notes that the Census’ use
of the classifications ‘‘firms’’ does not
track the number of ‘‘licenses’’. The
Commission believes that there are only
two licensees in the 24 GHz band that
were relocated from the 18 GHz band,
Teligent and TRW, Inc. It is the
Commission’s understanding that
Teligent and its related companies have
less than 1,500 employees, though this
may change in the future. TRW is not a
small entity. Thus, only one incumbent
licensee in the 24 GHz band is a small
business entity.
212. 24 GHz—Future Licensees. With
respect to new applicants in the 24 GHz
band, the size standard for ‘‘small
business’’ is an entity that, together with
controlling interests and affiliates, has
average annual gross revenues for the
three preceding years not in excess of
$15 million. ‘‘Very small business’’ in
the 24 GHz band is an entity that,
together with controlling interests and
affiliates, has average gross revenues not
exceeding $3 million for the preceding
three years. The SBA has approved
these small business size standards.
These size standards will apply to a
future 24 GHz license auction, if held.
213. Satellite Telecommunications.
Since 2007, the SBA has recognized
satellite firms within this revised
category, with a small business size
standard of $15 million. The most
current Census Bureau data are from the
economic census of 2007, and the
Commission will use those figures to
PO 00000
Frm 00031
Fmt 4701
Sfmt 4700
44443
gauge the prevalence of small
businesses in this category. Those size
standards are for the two census
categories of ‘‘Satellite
Telecommunications’’ and ‘‘Other
Telecommunications.’’ Under the
‘‘Satellite Telecommunications’’
category, a business is considered small
if it had $15 million or less in average
annual receipts. Under the ‘‘Other
Telecommunications’’ category, a
business is considered small if it had
$25 million or less in average annual
receipts.
214. The first category of Satellite
Telecommunications ‘‘comprises
establishments primarily engaged in
providing point-to-point
telecommunications services to other
establishments in the
telecommunications and broadcasting
industries by forwarding and receiving
communications signals via a system of
satellites or reselling satellite
telecommunications.’’ For this category,
Census Bureau data for 2007 show that
there were a total of 512 firms that
operated for the entire year. Of this
total, 464 firms had annual receipts of
under $10 million, and 18 firms had
receipts of $10 million to $24,999,999.
Consequently, the Commission
estimates that the majority of Satellite
Telecommunications firms are small
entities that might be affected by rules
adopted pursuant to the Order.
215. The second category of Other
Telecommunications ‘‘primarily
engaged in providing specialized
telecommunications services, such as
satellite tracking, communications
telemetry, and radar station operation.
This industry also includes
establishments primarily engaged in
providing satellite terminal stations and
associated facilities connected with one
or more terrestrial systems and capable
of transmitting telecommunications to,
and receiving telecommunications from,
satellite systems. Establishments
providing Internet services or voice over
Internet protocol (VoIP) services via
client-supplied telecommunications
connections are also included in this
industry.’’ For this category, Census
Bureau data for 2007 show that there
were a total of 2,383 firms that operated
for the entire year. Of this total, 2,346
firms had annual receipts of under $25
million. Consequently, the Commission
estimates that the majority of Other
Telecommunications firms are small
entities that might be affected by its
action.
216. Cable and Other Program
Distribution. Since 2007, these services
have been defined within the broad
economic census category of Wired
Telecommunications Carriers; that
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44444
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
category is defined as follows: ‘‘This
industry comprises establishments
primarily engaged in operating and/or
providing access to transmission
facilities and infrastructure that they
own and/or lease for the transmission of
voice, data, text, sound, and video using
wired telecommunications networks.
Transmission facilities may be based on
a single technology or a combination of
technologies.’’ The SBA has developed
a small business size standard for this
category, which is: All such firms
having 1,500 or fewer employees.
According to Census Bureau data for
2007, there were a total of 955 firms in
this previous category that operated for
the entire year. Of this total, 939 firms
had employment of 999 or fewer
employees, and 16 firms had
employment of 1,000 employees or
more. Thus, under this size standard,
the majority of firms can be considered
small and may be affected by rules
adopted pursuant to the Order.
217. Cable Companies and Systems.
The Commission has developed its own
small business size standards, for the
purpose of cable rate regulation. Under
the Commission’s rules, a ‘‘small cable
company’’ is one serving 400,000 or
fewer subscribers, nationwide. Industry
data indicate that, of 1,076 cable
operators nationwide, all but eleven are
small under this size standard. In
addition, under the Commission’s rules,
a ‘‘small system’’ is a cable system
serving 15,000 or fewer subscribers.
Industry data indicate that, of 7,208
systems nationwide, 6,139 systems have
under 10,000 subscribers, and an
additional 379 systems have 10,000–
19,999 subscribers. Thus, under this
second size standard, most cable
systems are small and may be affected
by rules adopted pursuant to the Order.
218. Cable System Operators. The Act
also contains a size standard for small
cable system operators, which is ‘‘a
cable operator that, directly or through
an affiliate, serves in the aggregate fewer
than 1 percent of all subscribers in the
United States and is not affiliated with
any entity or entities whose gross
annual revenues in the aggregate exceed
$250,000,000.’’ The Commission has
determined that an operator serving
fewer than 677,000 subscribers shall be
deemed a small operator, if its annual
revenues, when combined with the total
annual revenues of all its affiliates, do
not exceed $250 million in the
aggregate. Industry data indicate that, of
1,076 cable operators nationwide, all
but 10 are small under this size
standard. The Commission notes that it
neither requests nor collects information
on whether cable system operators are
affiliated with entities whose gross
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
annual revenues exceed $250 million,
and therefore it is unable to estimate
more accurately the number of cable
system operators that would qualify as
small under this size standard.
219. Open Video Services. The open
video system (‘‘OVS’’) framework was
established in 1996, and is one of four
statutorily recognized options for the
provision of video programming
services by local exchange carriers. The
OVS framework provides opportunities
for the distribution of video
programming other than through cable
systems. Because OVS operators provide
subscription services, OVS falls within
the SBA small business size standard
covering cable services, which is
‘‘Wired Telecommunications Carriers.’’
The SBA has developed a small
business size standard for this category,
which is: All such firms having 1,500 or
fewer employees. According to Census
Bureau data for 2007, there were a total
of 955 firms in this previous category
that operated for the entire year. Of this
total, 939 firms had employment of 999
or fewer employees, and 16 firms had
employment of 1,000 employees or
more. Thus, under this second size
standard, most cable systems are small
and may be affected by rules adopted
pursuant to the Order. In addition, the
Commission notes that it has certified
some OVS operators, with some now
providing service. Broadband service
providers (‘‘BSPs’’) are currently the
only significant holders of OVS
certifications or local OVS franchises.
The Commission does not have
financial or employment information
regarding the entities authorized to
provide OVS, some of which may not
yet be operational. Thus, again, at least
some of the OVS operators may qualify
as small entities.
220. Internet Service Providers. Since
2007, these services have been defined
within the broad economic census
category of Wired Telecommunications
Carriers; that category is defined as
follows: ‘‘This industry comprises
establishments primarily engaged in
operating and/or providing access to
transmission facilities and infrastructure
that they own and/or lease for the
transmission of voice, data, text, sound,
and video using wired
telecommunications networks.
Transmission facilities may be based on
a single technology or a combination of
technologies.’’ The SBA has developed
a small business size standard for this
category, which is: All such firms
having 1,500 or fewer employees.
According to Census Bureau data for
2007, there were 3,188 firms in this
category, total, that operated for the
entire year. Of this total, 3144 firms had
PO 00000
Frm 00032
Fmt 4701
Sfmt 4700
employment of 999 or fewer employees,
and 44 firms had employment of 1,000
employees or more. Thus, under this
size standard, the majority of firms can
be considered small. In addition,
according to Census Bureau data for
2007, there were a total of 396 firms in
the category Internet Service Providers
(broadband) that operated for the entire
year. Of this total, 394 firms had
employment of 999 or fewer employees,
and two firms had employment of 1,000
employees or more. Consequently, the
Commission estimates that the majority
of these firms are small entities that may
be affected by rules adopted pursuant to
the Order.
221. Internet Publishing and
Broadcasting and Web Search Portals.
The Commission’s actions may pertain
to interconnected VoIP services, which
could be provided by entities that
provide other services such as email,
online gaming, web browsing, video
conferencing, instant messaging, and
other, similar IP-enabled services. The
Commission has not adopted a size
standard for entities that create or
provide these types of services or
applications. However, the Census
Bureau has identified firms that
‘‘primarily engaged in (1) publishing
and/or broadcasting content on the
Internet exclusively or (2) operating
Web sites that use a search engine to
generate and maintain extensive
databases of Internet addresses and
content in an easily searchable format
(and known as Web search portals).’’
The SBA has developed a small
business size standard for this category,
which is: All such firms having 500 or
fewer employees. According to Census
Bureau data for 2007, there were 2,705
firms in this category that operated for
the entire year. Of this total, 2,682 firms
had employment of 499 or fewer
employees, and 23 firms had
employment of 500 employees or more.
Consequently, the Commission
estimates that the majority of these firms
are small entities that may be affected
by rules adopted pursuant to the Order.
222. Data Processing, Hosting, and
Related Services. Entities in this
category ‘‘primarily . . . provid[e]
infrastructure for hosting or data
processing services.’’ The SBA has
developed a small business size
standard for this category; that size
standard is $25 million or less in
average annual receipts. According to
Census Bureau data for 2007, there were
8,060 firms in this category that
operated for the entire year. Of these,
7,744 had annual receipts of under $
$24,999,999. Consequently, the
Commission estimates that the majority
of these firms are small entities that may
E:\FR\FM\07JYR2.SGM
07JYR2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
sradovich on DSK3GDR082PROD with RULES2
be affected by rules adopted pursuant to
the Order.
223. All Other Information Services.
The Census Bureau defines this industry
as including ‘‘establishments primarily
engaged in providing other information
services (except news syndicates,
libraries, archives, Internet publishing
and broadcasting, and Web search
portals).’’ The Commission’s actions
pertain to interconnected VoIP services,
which could be provided by entities that
provide other services such as email,
online gaming, web browsing, video
conferencing, instant messaging, and
other, similar IP-enabled services. The
SBA has developed a small business
size standard for this category; that size
standard is $7.0 million or less in
average annual receipts. According to
Census Bureau data for 2007, there were
367 firms in this category that operated
for the entire year. Of these, 334 had
annual receipts of under $5.0 million,
and an additional 11 firms had receipts
of between $5 million and $9,999,999.
Consequently, the Commission
estimates that the majority of these firms
are small entities that may be affected
by its action.
5. Description of Projected Reporting,
Recordkeeping, and Other Compliance
Requirements
224. In the Order the Commission
adopts today, it establishes four
technology-neutral tiers of bids
available for bidding with varying speed
and usage allowances, and for each tier
will differentiate between bids that
would offer either lower or higher
latency. All bidders must offer a service
at rates that are within a reasonable
range of rates for comparable fixed
wireline services offered in urban areas
225. Once a winning bidder is
authorized to begin receiving Phase II
auction support, it will have six years to
deploy a voice and broadband-capable
network meeting the relevant public
interest obligations to the required
number of locations included in its bid.
Phase II auction recipients will also be
required to meet interim service
milestones. They will have to complete
construction to 40 percent of the
requisite number of locations in a state
by the end of the third year of funding
authorization, an additional 20 percent
in subsequent years, with 100 percent
by the end of the sixth year. Phase II
recipients that at the end of their
support term have deployed to at least
95 percent, but less than 100 percent of
the number of funded locations will be
required to refund support based on the
number of funded locations left
unserved in the state. The amount
refunded will be based on one-half the
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
average support for the top five percent
of the highest cost funded locations
nationwide.
226. Entities that are interested in
participating in the Phase II auction will
be required to file a short-form
application in order to establish their
eligibility to participate. In their shortform applications, they will be required
to submit any information or
documentation required to establish
their eligibility for any bidding credits
the Commission adopts. If applicants
are already ETCs they will need to
identify themselves as such and all
applicants will be required to submit a
certification acknowledging that they
must be designated as an ETC for the
area in which they will receive support
prior to being authorized to begin
receiving support. Applicants will be
required to submit a certification of
their financial and technical capabilities
to provide the required service in the
required timeframe and information that
establishes their identity, including
disclosing parties with ownership
interests and any agreements the
applicants may have relating to the
support to be sought through the Phase
II auction. Applicants will also be
required to indicate the type of bid they
intend to place and describe the
technology or technologies that will be
used to provide service for each
category of bid. If an applicant plans to
use spectrum, it must also provide
additional details about its spectrum
access, including demonstrating that it
has the proper authorizations, if
applicable, and access and that the
spectrum resources will be sufficient to
cover peak network usage and deliver
the minimum performance
requirements.
227. Applicants will also be required
to certify in their short-form application
that they have provided voice,
broadband, and/or electric transmission
or distribution services for at least two
years or they are the wholly-owned
subsidiary of such an entity, and specify
the number of years they have been
operating. Applicants that have
provided voice or broadband services
must also certify that they have filed
FCC Form 477s as required during that
time period. Applicants that have
operated only an electric distribution or
transmission network must submit
qualified operating or financial reports
for the relevant time period that they
have filed with the relevant financial
institution along with a certification
stating that those submissions are the
true and accurate copies of the
submissions made to the relevant
financial institution. Applicants that are
able to demonstrate that they have
PO 00000
Frm 00033
Fmt 4701
Sfmt 4700
44445
operated such a network for at least two
years will also be required to submit the
prior fiscal year’s audited financial
statements. Applicants that meet these
requirements but that do not audit their
financial statements in the ordinary
course of business can instead certify
that they will submit their audited
financial statements for the prior fiscal
year during the long-form application
review process if they are selected as a
winning bidder. A winning bidder that
fails to submit its audited financial
statements during the long-form
application stage will be subject to a
forfeiture. If applicants cannot meet
these requirements, in the alternative,
applicants may instead submit audited
financial statements from the three most
recent consecutive fiscal years and a
letter of interest from a qualified bank
that the bank would provide a letter of
credit to the bidder if the bidder were
selected for bids of a certain dollar
magnitude. The short-form application
may also include additional
certifications or requirements that are
adopted in an auction procedures public
notice.
228. Within a specified number of
days of the release of a public notice
announcing an entity as a winning
bidder, that winning bidder will be
required to file a long-form application.
In this long-form application, winning
bidders will be required to submit a selfcertification regarding their financial
and technical qualifications and a selfcertification that specifies that that they
will be able to meet all of the applicable
public interest obligations for the
relevant categories, including the
requirement that they offer service at
rates that are equal or lower to the
Commission’s reasonable comparability
benchmarks for fixed wireline services
offered in urban areas. Winning bidders
will also be required to submit a
description of the technology and
system design they intend to use to
deliver voice and broadband service,
including a network diagram which
must be certified by a professional
engineer. The professional engineer
must certify that the network is capable
of delivering, to at least 95 percent of
the required number of locations in each
relevant state, voice and broadband
service that meets the requisite
performance requirements. Winning
bidders proposing to use wireless
technologies must also provide certain
information related to their spectrum
access and licenses if applicable.
229. Winning bidders will also have
to certify in their long-form applications
that they have available funds for all
project costs that will exceed the
amount of support that will be received
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44446
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
from the Phase II auction for the first
two years of their support term and that
they will comply with program
requirements, including service
milestones. They will also have to
describe how the required construction
will be funded and include financial
projections that demonstrate that they
can cover the necessary debt service
payments over the life of the loan. The
long-form application may also include
additional certifications or requirements
that are adopted in an auction
procedures public notice.
230. Within the number of days
specified by public notice, the winning
bidder will be required to submit a letter
of credit commitment letter from a
qualified bank as part of the long-form
application process. Within 180 days of
being announced as a winning bidder,
winning bidders that demonstrated in
their short-form application that they
had provided a voice, broadband and/or
electric distribution or transmission
service for at least two years and did not
submit their audited financials during
the short-form application process, must
submit their audited financial
statements for the prior year. Within 180
days of an entity being announced as a
winning bidder, the winning bidder will
be required to submit appropriate
documentation in its long-form
application of its ETC designation in all
areas for which it will receive support,
documentation showing that the
designated areas cover the bid areas,
and a letter from an officer of the
company certifying that the ETC
designation covers the relevant areas
where the winning bidder will receive
support.
231. After the Commission has
reviewed the winning bidder’s longform application and has determined
that it is qualified to be authorized to
begin receiving Phase II support, a
public notice will be released stating
that the winning bidder is ready to be
authorized. At that point, the winning
bidder will have the number of days
specified by public notice to submit an
irrevocable standby letter of credit from
a bank that meets the Commission’s
requirements and an opinion letter from
legal counsel. After the letter of credit
and opinion letter are approved a public
notice will be released authorizing the
winning bidder to begin receiving Phase
II auction support. Phase II recipients
will be required to maintain an open
and renewed letter of credit until USAC
has verified that their build-outs are
complete.
232. If an entity that files a short-form
application defaults, it will be subject to
a forfeiture. An entity will be
considered in default if it fails to timely
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
file a long-form application or meet
document submission deadlines, is
found ineligible or unqualified to
receive Phase II support by the Bureaus
on delegated authority, or otherwise
defaults on its bid or is disqualified for
any reason prior to the authorization of
the support.
233. Once a Phase II recipient has
been authorized to begin receiving
support, it will be required to report
certain information to the Commission
so that the Commission can track the
progress of Phase II recipients and
monitor their use of the public’s funds
before and after they meet service
milestones. Specifically, each year
Phase II auction recipients will be
required to submit by the last business
day of the second calendar month
following each support year a list of the
geocoded locations and the total number
of locations to which they have newly
offered service meeting the requisite
requirements with Connect America
support in the prior year. The first list
they submit, will also include a list of
all of the locations where the recipient
already offers service meeting the
Commission’s requirements before
receiving support. Carrier are
encouraged to submit their locations on
a rolling basis to an online portal that
will be developed by the Bureau and
USAC, 30 days from the date of
deployment. By the last business day of
the second calendar month following
the end of certain support years,
recipients will also be required to
submit certifications that they have met
the relevant interim service milestones.
234. Like all recipients of Connect
America support, all Phase II recipients
are also required to file section 54.313
annual reports and section 54.314
certifications. In addition to other
information required to be submitted in
the section 54.313 annual reports, Phase
II recipients will be required to identify
the total amount of Connect America
Phase II support they used for capital
expenditures in the previous year and
certify that they have available funds for
all project costs that will exceed the
amount of support that will be received
from the Phase II auction for the next
calendar year. After they have met the
final service milestone, recipients will
also be required to certify in their
section 54.313 annual reports that the
network they operated in the prior year
met the Commission’s performance
requirements.
235. Analogous application and
reporting requirements also are adopted
for recipients of support awarded
through the Remote Areas Fund auction.
PO 00000
Frm 00034
Fmt 4701
Sfmt 4700
6. Steps Taken To Minimize Significant
Economic Impact on Small Entities, and
Significant Alternatives Considered
236. The RFA requires an agency to
describe any significant alternatives that
it has considered in reaching its
approach, which may include the
following four alternatives, among
others: (1) The establishment of
differing compliance or reporting
requirements or timetables that take into
account the resources available to small
entities; (2) the clarification,
consolidation, or simplification of
compliance or reporting requirements
under the rule for small entities; (3) the
use of performance, rather than design,
standards; and (4) an exemption from
coverage of the rule, or any part thereof,
for small entities.
237. The Commission has taken a
number of steps to ensure that small
entities have the opportunity to
participate in the Phase II auction. For
example, the Commission adopts
different performance standards for
bidders to maximize the types of entities
that can participate in the Phase II
auction. Recognizing that not all
entities, including some small entities,
will be able to meet the baseline
performance standards the Commission
adopts, it permits entities to choose to
meet minimum performance
requirements. Although the Commission
will rank bids using weights and
minimum performance bidders are not
guaranteed a 10-year support term
under certain circumstances, it does not
restrict the geographic area where
entities placing bids for relaxed
standards can bid.
238. Because the Phase II challenge
process was a resource-intensive
process for all entities involved, the
Commission has also decided to rely on
Form 477 data and conduct a more
streamlined challenge process to
determine areas that are eligible for the
Phase II auction. This means that
competitors, who can be small entities,
that qualify as an unsubsidized
competitor will only have to file a Form
477 as they are already required to do
to ensure that the areas they serve are
not overbuilt and may submit comments
within 30 days of the publication of the
preliminary eligible census block list if
they have built out since they have
submitted June 2015 Form 477 data.
239. The Commission expects that the
minimum geographic area for bidding
will be a census block group containing
one or more eligible census blocks. The
Commission found adopting a larger
minimum geographic unit would
preclude entities from participating in
the Phase II auction, including small
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
entities that intend to construct a
smaller network or edge out their
networks. The Commission expects that
the auction design adopted by the
Commission in the Auction Procedures
Public Notice will similarly account for
the needs of small entities.
240. Based on lessons learned from
the rural broadband experiments and in
response to comments submitted by
participating entities, including small
entities, the Commission also adopts
requirements for the short-form and
long-form applications that will
maximize the number and types of
entities that can participate. For
example, in the rural broadband
experiments, the Commission required
that provisionally selected bidders
submit three years of audited financials.
A number of entities, including small
entities, could not meet this
requirement because they had not been
in business for three years or they
claimed audited financials were
prohibitively expensive. For the Phase II
auction and the Remote Areas Fund, the
Commission will require that applicants
certify in their short-form application
that they have provided voice,
broadband, and/or electric distribution
or transmission services for at least two
years or that they are the wholly-owned
subsidiary of such an entity. Applicants
that have provided voice or broadband
services must also certify that they have
filed FCC Form 477s as required during
that time period and submit their
audited financial statements from the
prior fiscal year. Applicants that have
operated only an electric distribution or
transmission network must submit
qualified operating or financial reports.
As an alternative, the Commission also
permits applicants that have
demonstrated that they have operated a
network for two years but do not audit
their financial statements in the
ordinary course of business, many
which may be small companies, to wait
to submit audited financial statements
until the long-form application review
process. This will allow such applicants
to avoid the cost of obtaining an audit
if they are not ultimately announced as
winning bidders. Also, by requiring
only one year of audited financials, the
Commission reduces the cost of this
requirement for entities that have
already demonstrated that they are able
to maintain a voice, broadband, and/or
electric distribution or transmission
network for two years.
241. Recognizing that these
requirements may preclude entities,
including small entities, that have not
operated a voice, broadband, and/or
electric distribution or transmission
network for two years, the Commission
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
also provides the alternative of letting
applicants instead submit three year of
audited financials and a letter of interest
from a qualified bank that the bank
would provide a letter of credit to the
bidder if the bidder were selected for
bids of a certain dollar magnitude. The
Commission concluded that its interest
in having some level of insight into the
financial health over a significant period
of time of applicants that lack an
operating history outweigh the costs of
obtaining three years of financial
statements for this subset of entities.
242. Additionally, the Commission
has taken steps to reduce the costs of the
letter of credit requirement for the
recipients of support awarded through a
competitive bidding process to serve
fixed locations in response to claims
from entities, particularly small entities,
that the letter of credit requirement for
the rural broadband experiments was
prohibitively expensive. First, the
Commission only requires that
recipients maintain an open irrevocable
standby letter of credit until it has been
verified that they have met the final
service milestone; in the rural
broadband experiments the letter of
credit originally had to be open and
renewed for the entire support term.
Second, recipients can modestly reduce
the value of their letters of credit as they
have made substantial progress in
building out their networks by meeting
certain service milestones. Third, the
Commission has modified its issuing
bank eligibility requirements for all
recipients of support authorized through
competitive bidding to serve fixed
locations. The Commission has
expanded the pool of eligible U.S. banks
and made the National Rural Utilities
Cooperative Finance Corporation (CFC)
an eligible issuing bank. This will
potentially reduce the costs and other
challenges of obtaining a letter of credit
for entities that lack established
business relationships with larger
banks.
243. The Commission notes that the
reporting requirements it adopts are
tailored to ensuring that support is used
for its intended purpose and so that the
Commission can monitor the progress of
recipients in meeting their service
milestones. The Commission finds that
the importance of monitoring the use of
the public’s funds outweighs the burden
of filing the required information on all
entities, including small entities,
particularly because much of the
information that it requires they report
is information it expects they will
already be collecting to ensure they
comply with the terms and conditions
of support and they will be able to
submit their location data on a rolling
PO 00000
Frm 00035
Fmt 4701
Sfmt 4700
44447
basis to help minimize the burden of
uploading a large number of locations at
once.
244. People with Disabilities. To
request materials in accessible formats
for people with disabilities (braille,
large print, electronic files, audio
format), send an email to fcc504@fcc.gov
or call the Consumer & Governmental
Affairs Bureau at 202–418–0530 (voice),
202–418–0432 (tty).
X. Ordering Clauses
245. Accordingly, it is ordered,
pursuant to the authority contained in
sections 1, 2, 4(i), 5, 10, 201–206, 214,
218–220, 251, 252, 254, 256, 303(r), 332,
403, 405, and 503 of the
Communications Act of 1934, as
amended, and section 706 of the
Telecommunications Act of 1996, 47
U.S.C. 151, 152, 154(i), 155, 160, 201–
206, 214, 218–220, 251, 252, 254, 256,
303(r), 332, 403, 405, 503, 1302, and
sections 1.1, 1.427, and 1.429 of the
Commission’s rules, 47 CFR 1.1, 1.427,
and 1.429, that this Report and Order
and concurrently adopted Further
Notice of Proposed Rulemaking is
adopted, effective thirty (30) days after
publication of the text or summary
thereof in the Federal Register, except
for those rules and requirements
involving Paperwork Reduction Act
burdens, which shall become effective
immediately upon announcement in the
Federal Register of OMB approval. It is
the Commission’s intention in adopting
these rules that if any of the rules that
the Commission retains, modifies, or
adopts herein, or the application thereof
to any person or circumstance, are held
to be unlawful, the remaining portions
of the rules not deemed unlawful, and
the application of such rules to other
persons or circumstances, shall remain
in effect to the fullest extent permitted
by law.
246. It is further ordered that,
pursuant to section 1.3 of the
Commission’s rules, 47 CFR 1.3, the
Petition for Waiver filed by NTCA—The
Rural Broadband Association on Feb. 3,
2015 is dismissed as moot in part and
denied in part to the extent described
herein.
247. It is further ordered that,
pursuant to section 1.3 of the
Commission’s rules, 47 CFR 1.3, the
Petition for Waiver filed by The
National Rural Utilities Cooperative
Finance Corporation and the Rural
Telephone Finance Cooperative on Jan.
21, 2015 is dismissed as moot.
248. It is further ordered that,
pursuant to section 1.3 of the
Commission’s rules, 47 CFR 1.3, the
Petition for Waiver filed by Allamakee-
E:\FR\FM\07JYR2.SGM
07JYR2
44448
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
Clayton Electric Cooperative, Inc. on
Jan. 30, 2015 is dismissed as moot.
249. It is further ordered that,
pursuant to section 1.3 of the
Commission’s rules, 47 CFR 1.3, the
Petition for Waiver filed by Midwest
Energy Cooperative, Inc. on March 20,
2015 is dismissed as moot.
250. It is further ordered that Part 54
of the Commission’s rules, 47 CFR part
54, is amended as set forth in Appendix
A, and such rule amendments shall be
effective thirty (30) days after
publication of the rules amendments in
the Federal Register, except to the
extent they contain information
collections subject to PRA review. The
rules that contain information
collections subject to PRA review shall
become effective immediately upon
announcement in the Federal Register
of OMB approval and an effective date.
251. It is further ordered that the
Commission shall send a copy of this
Report and Order and concurrently
adopted Further Notice of Proposed
Rulemaking to Congress and the
Government Accountability Office
pursuant to the Congressional Review
Act, see 5 U.S.C. 801(a)(1)(A).
252. It is further ordered, that the
Commission’s Consumer and
Governmental Affairs Bureau, Reference
Information Center, shall send a copy of
this Report and Order and concurrently
adopted Further Notice of Proposed
Rulemaking, including the Final
Regulatory Flexibility Analysis, to the
Chief Counsel for Advocacy of the Small
Business Administration.
List of Subjects
sradovich on DSK3GDR082PROD with RULES2
Administrative practice and
procedure, Civil rights, Claims,
Communications common carriers,
Cuba, Drug abuse, Environmental
impact statements, Equal access to
justice, Equal employment opportunity,
Federal buildings and facilities,
Government employees, Income taxes,
Indemnity payments, Individuals with
disabilities, Investigations, Lawyers,
Metric system, Penalties, Radio,
Reporting and recordkeeping
requirements, Telecommunications,
Television, Wages.
47 CFR Part 54
Communications common carriers,
Health facilities, Infants and children,
Internet, Libraries, Reporting and
recordkeeping requirements, Schools,
Telecommunications, Telephone.
17:32 Jul 06, 2016
Final Rules
For the reasons discussed in the
preamble, the Federal Communications
Commission amends 47 CFR parts 1and
54 as follows:
PART 1—PRACTICE AND
PROCEDURE
1. The authority citation for part 1
continues to read as follows:
■
Authority: 15 U.S.C. 79, et seq.; 47 U.S.C.
151, 154(i), 154(j), 155, 157, 160, 201, 225,
227, 303, 309, 332, 1403, 1404, 1451, 1452,
and 1455.
2. Section 1.21001 is amended by
revising paragraph (b)(6) to read as
follows:
■
§ 1.21001 Participation in competitive
bidding for support.
*
*
*
*
*
(b) * * *
(6) Certification that the applicant is
in compliance with all statutory and
regulatory requirements for receiving
the universal service support that the
applicant seeks, or, if expressly allowed
by the rules specific to a high-cost
support mechanism, a certification that
the applicant acknowledges that it must
be in compliance with such
requirements before being authorized to
receive support;
*
*
*
*
*
PART 54—UNIVERSAL SERVICE
3. The authority citation for part 54
continues to read as follows:
■
Authority: 47 U.S.C. 151, 154(i), 155, 201,
205, 214, 219, 220, 254, 303(r), 403, and 1302
unless otherwise noted.
47 CFR Part 1
VerDate Sep<11>2014
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Jkt 238001
4. Section 54.309 is amended by
revising paragraph (a) to read as follows:
■
§ 54.309 Connect America Fund Phase II
Public Interest Obligations.
(a) Recipients of Connect America
Phase II support are required to offer
broadband service with latency suitable
for real-time applications, including
Voice over Internet Protocol, and usage
capacity that is reasonably comparable
to comparable offerings in urban areas,
at rates that are reasonably comparable
to rates for comparable offerings in
urban areas. For purposes of
determining reasonable comparable
usage capacity, recipients are presumed
to meet this requirement if they meet or
exceed the usage level announced by
public notice issued by the Wireline
Competition Bureau. For purposes of
determining reasonable comparability of
PO 00000
Frm 00036
Fmt 4701
Sfmt 4700
rates, recipients are presumed to meet
this requirement if they offer rates at or
below the applicable benchmark to be
announced annually by public notice
issued by the Wireline Competition
Bureau, or no more than the nonpromotional prices charged for a
comparable fixed wireline service in
urban areas in the state or U.S. Territory
where the eligible telecommunications
carrier receives support.
(1) Recipients of Connect America
Phase II model-based support are
required to offer broadband service at
actual speeds of at least 10 Mbps
downstream/1 Mbps upstream.
(2) Recipients of Connect America
Phase II support awarded through a
competitive bidding process are
required to offer broadband service
meeting the performance standards
required in bid tiers based on
performance standards.
(i) Winning bidders meeting the
minimum performance tier standards
are required to offer broadband service
at actual speeds of 10 Mbps downstream
and 1 Mbps upstream and to offer at
least 150 gigabytes of monthly usage.
(ii) Winning bidders meeting the
baseline performance tier standards are
required to offer broadband service at
actual speeds of at least 25 Mbps
downstream and 3 Mbps upstream and
offer a minimum usage allowance of 150
GB per month, or that reflects the
average usage of a majority of fixed
broadband customers, using Measuring
Broadband America data or a similar
data source, whichever is higher, and
announced annually by public notice
issued by the Wireline Competition
Bureau over the 10-year term.
(iii) Winning bidders meeting the
above-baseline performance tier
standards are required to offer
broadband service at actual speeds of at
least 100 Mbps downstream and 20
Mbps upstream and offer an unlimited
monthly usage allowance.
(iv) Winning bidders meeting the
Gigabit performance tier standards are
required to offer broadband service at
actual speeds of at least 1 Gigabit per
second downstream and 500 Mbps
upstream and offer an unlimited
monthly usage allowance.
(v) For each of the tiers in paragraphs
(a)(2)(i) through (iv) of this section,
bidders are required to meet one of two
latency performance levels:
(A) Low latency bidders will be
required to meet 95 percent or more of
all peak period measurements of
network round trip latency at or below
100 milliseconds; and
(B) High latency bidders will be
required to meet 95 percent or more of
all peak period measurements of
E:\FR\FM\07JYR2.SGM
07JYR2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
network round trip latency at or below
750 ms and, with respect to voice
performance, demonstrate a score of
four or higher using the Mean Opinion
Score (MOS).
*
*
*
*
*
■ 5. Section 54.310 is amended by
revising paragraph (c) to read as follows:
§ 54.310 Connect America Fund for Price
Cap Territories—Phase II.
sradovich on DSK3GDR082PROD with RULES2
*
*
*
*
*
(c) Deployment obligation. Recipients
of Connect America Phase II modelbased support must complete
deployment to 40 percent of supported
locations by December 31, 2017, to 60
percent of supported locations by
December 31, 2018, to 80 percent of
supported locations by December 31,
2019, and to 100 percent of supported
locations by December 31, 2020.
Recipients of Connect America Phase II
awarded through a competitive bidding
process must complete deployment to
40 percent of supported locations by the
end of the third year, to 60 percent of
supported locations by the end of the
fourth year, to 80 percent of supported
locations by the end of the fifth year,
and to 100 percent of supported
locations by the end of the sixth year.
Compliance shall be determined based
on the total number of supported
locations in a state.
(1) For purposes of meeting the
obligation to deploy to the requisite
number of supported locations in a
state, recipients of Connect America
Phase II model-based support may serve
unserved locations in census blocks
with costs above the extremely high-cost
threshold instead of locations in eligible
census blocks, provided that they meet
the public interest obligations set forth
in § 54.309(a) introductory text and
(a)(1) for those locations and provided
that the total number of locations
covered is greater than or equal to the
number of supported locations in the
state.
(2) Recipients of Connect America
Phase II support may elect to deploy to
95 percent of the number of supported
locations in a given state with a
corresponding reduction in support
computed based on the average support
per location in the state times 1.89.
*
*
*
*
*
■ 6. Section 54.313 is amended by
revising paragraph (e) to read as follows:
§ 54.313 Annual reporting requirements
for high-cost recipients.
*
*
*
*
*
(e) In addition to the information and
certifications in paragraph (a) of this
section, the following requirements
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
apply to Phase II and Remote Areas
Fund recipients:
(1) Any price cap carrier that elects to
receive Connect America Phase II
model-based support shall provide:
(i) On July 1, 2016 a list of the
geocoded locations already meeting the
§ 54.309 public interest obligations at
the end of calendar year 2015, and the
total amount of Phase II support, if any,
the price cap carrier used for capital
expenditures in 2015.
(ii) On July 1, 2017 and every year
thereafter ending July 1, 2021, the
following information:
(A) The number, names, and
addresses of community anchor
institutions to which the eligible
telecommunications carrier newly began
providing access to broadband service
in the preceding calendar year;
(B) The total amount of Phase II
support, if any, the price cap carrier
used for capital expenditures in the
previous calendar year; and
(C) A certification that it bid on
category one telecommunications and
Internet access services in response to
all FCC Form 470 postings seeking
broadband service that meets the
connectivity targets for the schools and
libraries universal service support
program for eligible schools and
libraries (as described in § 54.501)
located within any area in a census
block where the carrier is receiving
Phase II model-based support, and that
such bids were at rates reasonably
comparable to rates charged to eligible
schools and libraries in urban areas for
comparable offerings.
(2) Any recipient of Phase II or
Remote Areas Fund support awarded
through a competitive bidding process
shall provide:
(i) Starting the first July 1st after
receiving support until the July 1st after
the recipient’s support term has ended:
(A) The number, names, and
addresses of community anchor
institutions to which the eligible
telecommunications carrier newly began
providing access to broadband service
in the preceding calendar year;
(B) The total amount of support, if
any, the recipient used for capital
expenditures in the previous calendar
year; and
(C) A certification that it bid on
category one telecommunications and
Internet access services in response to
all FCC Form 470 postings seeking
broadband service that meets the
connectivity targets for the schools and
libraries universal service support
program for eligible schools and
libraries (as described in § 54.501)
located within any area in a census
block where the carrier is receiving
PO 00000
Frm 00037
Fmt 4701
Sfmt 4700
44449
support awarded through auction, and
that such bids were at rates reasonably
comparable to rates charged to eligible
schools and libraries in urban areas for
comparable offerings.
(ii) Starting the first July 1st after
receiving support until the July 1st after
the recipient’s penultimate year of
support, a certification that the recipient
has available funds for all project costs
that will exceed the amount of support
that will be received for the next
calendar year.
(iii) Starting the first July 1st after
meeting the final service milestone in
§ 54.310(c) of this chapter until the July
1st after the Phase II recipient’s support
term has ended, a certification that the
Phase II-funded network that the Phase
II auction recipient operated in the prior
year meets the relevant performance
requirements in § 54.309 of this chapter,
or that the network that the Remote
Areas Fund recipient operated in the
prior year meets the relevant
performance requirements for the
Remote Areas Fund.
*
*
*
*
*
■ 7. Section 54.315 is added to read as
follows:
§ 54.315 Application process for phase II
support distributed through competitive
bidding.
(a) Application to participate in
competitive bidding for Phase II
support. In addition to providing
information specified in § 1.21001(b) of
this chapter and any other information
required by the Commission, an
applicant to participate in competitive
bidding for Phase II auction support
shall:
(1) Provide ownership information as
set forth in § 1.2112(a) of this chapter;
(2) Certify that the applicant is
financially and technically qualified to
meet the public interest obligations of
§ 54.309 for each relevant tier and in
each area for which it seeks support;
(3) Disclose its status as an eligible
telecommunications carrier to the extent
applicable and certify that it
acknowledges that it must be designated
as an eligible telecommunications
carrier for the area in which it will
receive support prior to being
authorized to receive support;
(4) Indicate the tier of bids that the
applicant plans to make and describe
the technology or technologies that will
be used to provide service for each tier
of bid;
(5) Submit any information required
to establish eligibility for any bidding
weights adopted by the Commission in
an order or public notice;
(6) To the extent that an applicant
plans to use spectrum to offer its voice
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44450
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
and broadband services, demonstrate it
has the proper authorizations, if
applicable, and access to operate on the
spectrum it intends to use, and that the
spectrum resources will be sufficient to
cover peak network usage and deliver
the minimum performance requirements
to serve all of the fixed locations in
eligible areas, and certify that it will
retain its access to the spectrum for at
least 10 years from the date of the
funding authorization; and
(7) Submit specified operational and
financial information.
(i) Submit a certification that the
applicant has provided a voice,
broadband, and/or electric transmission
or distribution service for at least two
years or that it is a wholly-owned
subsidiary of such an entity, and
specifying the number of years the
applicant or its parent company has
been operating, and submit the financial
statements from the prior fiscal year that
are audited by a certified public
accountant. If the applicant is not
audited in the ordinary course of
business, in lieu of submitting audited
financial statements it must certify that
it will provide financial statements from
the prior fiscal year that are audited by
a certified independent public
accountant by a specified deadline
during the long-form application review
process.
(A) If the applicant has provided a
voice and/or broadband service it must
certify that it has filed FCC Form 477s
as required during this time period.
(B) If the applicant has operated only
an electric transmission or distribution
service, it must submit qualified
operating or financial reports that it has
filed with the relevant financial
institution for the relevant time period
along with a certification that the
submission is a true and accurate copy
of the reports that were provided to the
relevant financial institution.
(ii) If an applicant cannot meet the
requirements in paragraph (a)(7)(i) of
this section, in the alternative it must
submit the audited financial statements
from the three most recent fiscal years
and a letter of interest from a bank
meeting the qualifications set forth in
paragraph (c)(2) of this section, that the
bank would provide a letter of credit as
described in paragraph (c) of this
section to the bidder if the bidder were
selected for bids of a certain dollar
magnitude.
(b) Application by winning bidders for
Phase II auction support—(1) Deadline.
As provided by public notice, winning
bidders for Phase II auction support
shall file an application for Phase II
auction support no later than the
number of business days specified after
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
the public notice identifying them as
winning bidders.
(2) Application contents. An
application for Phase II auction support
must contain:
(i) Identification of the party seeking
the support, including ownership
information as set forth in § 1.2112(a) of
this chapter;
(ii) Certification that the applicant is
financially and technically qualified to
meet the public interest obligations of
§ 54.309 for each tier in which it is a
winning bidder and in each area for
which it seeks support;
(iii) Certification that the applicant
will meet the relevant public interest
obligations for each relevant tier,
including the requirement that it will
offer service at rates that are equal or
lower to the Commission’s reasonable
comparability benchmarks for fixed
wireline services offered in urban areas;
(iv) A description of the technology
and system design the applicant intends
to use to deliver voice and broadband
service, including a network diagram
which must be certified by a
professional engineer. The professional
engineer must certify that the network is
capable of delivering, to at least 95
percent of the required number of
locations in each relevant state, voice
and broadband service that meets the
requisite performance requirements in
§ 54.309;
(v) Certification that the applicant
will have available funds for all project
costs that exceed the amount of support
to be received from the Phase II auction
for the first two years of its support term
and that the applicant will comply with
all program requirements, including
service milestones;
(vi) A description of how the required
construction will be funded, including
financial projections that demonstrate
the applicant can cover the necessary
debt service payments over the life of
the loan, if any;
(vii) Certification that the party
submitting the application is authorized
to do so on behalf of the applicant; and
(viii) Such additional information as
the Commission may require.
(3) No later than the number of days
provided by public notice, the applicant
shall submit a letter from a bank
meeting the eligibility requirements
outlined in paragraph (c) of this section
committing to issue an irrevocable
stand-by letter of credit, in the required
form, to the winning bidder. The letter
shall at a minimum provide the dollar
amount of the letter of credit and the
issuing bank’s agreement to follow the
terms and conditions of the
Commission’s model letter of credit.
PO 00000
Frm 00038
Fmt 4701
Sfmt 4700
(4) No later than 180 days after the
public notice identifying them as a
winning bidder, bidders that did not
submit audited financial statements in
their short-form application pursuant to
paragraph (a)(7)(i) of this section must
submit the financial statements from the
prior fiscal year that are audited by a
certified independent public
accountant.
(5) No later than 180 days after the
public notice identifying it as a winning
bidder, the applicant shall certify that it
is an eligible telecommunications
carrier in any area for which it seeks
support and submit the relevant
documentation supporting that
certification.
(6) Application processing. (i) No
application will be considered unless it
has been submitted in an acceptable
form during the period specified by
public notice. No applications
submitted or demonstrations made at
any other time shall be accepted or
considered.
(ii) Any application that, as of the
submission deadline, either does not
identify the applicant seeking support
as specified in the public notice
announcing application procedures or
does not include required certifications
shall be denied.
(iii) An applicant may be afforded an
opportunity to make minor
modifications to amend its application
or correct defects noted by the
applicant, the Commission, the
Administrator, or other parties. Minor
modifications include correcting
typographical errors in the application
and supplying non-material information
that was inadvertently omitted or was
not available at the time the application
was submitted.
(iv) Applications to which major
modifications are made after the
deadline for submitting applications
shall be denied. Major modifications
include, but are not limited to, any
changes in the ownership of the
applicant that constitute an assignment
or change of control, or the identity of
the applicant, or the certifications
required in the application.
(v) After receipt and review of the
applications, a public notice shall
identify each winning bidder that may
be authorized to receive Phase II auction
support after the winning bidder
submits a letter of credit and an
accompanying opinion letter as
described in paragraph (c) of this
section, in a form acceptable to the
Commission. Each such winning bidder
shall submit a letter of credit and
accompanying opinion letter as required
by paragraph (c) of this section, in a
form acceptable to the Commission no
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
later than the number of business days
provided by public notice.
(vi) After receipt of all necessary
information, a public notice will
identify each winning bidder that is
authorized to receive Phase II auction
support.
(c) Letter of credit. Before being
authorized to receive Phase II auction
support, a winning bidder shall obtain
an irrevocable standby letter of credit
which shall be acceptable in all respects
to the Commission.
(1) Value. Each recipient authorized
to receive Phase II support shall
maintain the standby letter of credit or
multiple standby letters of credit in an
amount equal to at a minimum the
amount of Phase II auction support that
has been disbursed and that will be
disbursed in the coming year, until the
Universal Service Administrative
Company has verified that the recipient
met the final service milestone as
described in § 54.310(c).
(i) Once the recipient has met its 60
percent service milestone, it may obtain
a new letter of credit or renew its
existing letter of credit so that it is
valued at a minimum at 90 percent of
the total support amount already
disbursed plus the amount that will be
disbursed in the coming year.
(ii) Once the recipient has met its 80
percent service milestone, it may obtain
a new letter of credit or renew its
existing letter of credit so that it is
valued at a minimum at 80 percent of
the total support that has been
disbursed plus the amount that will be
disbursed in the coming year.
(2) The bank issuing the letter of
credit shall be acceptable to the
Commission. A bank that is acceptable
to the Commission is:
(i) Any United States bank
(A) That is insured by the Federal
Deposit Insurance Corporation, and
(B) That has a bank safety rating
issued by Weiss of B- or better; or
(ii) CoBank, so long as it maintains
assets that place it among the 100 largest
United States Banks, determined on
basis of total assets as of the calendar
year immediately preceding the
issuance of the letter of credit and it has
a long-term unsecured credit rating
issued by Standard & Poor’s of BBB- or
better (or an equivalent rating from
another nationally recognized credit
rating agency); or
(iii) The National Rural Utilities
Cooperative Finance Corporation, so
long as it maintains assets that place it
among the 100 largest United States
Banks, determined on basis of total
assets as of the calendar year
immediately preceding the issuance of
the letter of credit and it has a long-term
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
unsecured credit rating issued by
Standard & Poor’s of BBB- or better (or
an equivalent rating from another
nationally recognized credit rating
agency); or
(iv) Any non-United States bank
(A) That is among the 50 largest nonU.S. banks in the world, determined on
the basis of total assets as of the end of
the calendar year immediately
preceding the issuance of the letter of
credit (determined on a U.S. dollar
equivalent basis as of such date);
(B) Has a branch office in the District
of Columbia or such other branch office
agreed to by the Commission;
(C) Has a long-term unsecured credit
rating issued by a widely-recognized
credit rating agency that is equivalent to
a BBB- or better rating by Standard &
Poor’s; and
(D) Issues the letter of credit payable
in United States dollars
(3) A winning bidder for Phase II
auction support shall provide with its
letter of credit an opinion letter from its
legal counsel clearly stating, subject
only to customary assumptions,
limitations, and qualifications, that in a
proceeding under Title 11 of the United
States Code, 11 U.S.C. 101 et seq. (the
‘‘Bankruptcy Code’’), the bankruptcy
court would not treat the letter of credit
or proceeds of the letter of credit as
property of the winning bidder’s
bankruptcy estate under section 541 of
the Bankruptcy Code.
(4) Authorization to receive Phase II
auction support is conditioned upon
full and timely performance of all of the
requirements set forth in this section,
and any additional terms and conditions
upon which the support was granted.
(i) Failure by a Phase II auction
support recipient to meet its service
milestones as required by § 54.310 will
trigger reporting obligations and the
withholding of support as described in
§ 54.320(c). Failure to come into full
compliance within 12 months will
trigger a recovery action by the
Universal Service Administrative
Company. If the Phase II recipient does
not repay the requisite amount of
support within six months, the
Universal Service Administrative
Company will be entitled to draw the
entire amount of the letter of credit and
may disqualify the Phase II auction
support recipient from the receipt of
Phase II auction support or additional
universal service support.
(ii) The default will be evidenced by
a letter issued by the Chief of the
Wireline Competition Bureau or the
Wireless Telecommunications Bureau,
or their respective designees, which
letter, attached to a standby letter of
credit draw certificate, shall be
PO 00000
Frm 00039
Fmt 4701
Sfmt 4700
44451
sufficient for a draw on the standby
letter of credit for the entire amount of
the standby letter of credit.
■ 8. Section 54.316 is amended by
revising paragraph (a) introductory text,
paragraph (a)(4), and paragraph (b)
introductory text, adding paragraphs
(b)(4) and (5), and revising paragraph (c)
to read as follows:
§ 54.316 Broadband deployment reporting
and certification requirements for high-cost
recipients.
(a) Broadband deployment reporting.
Rate-of Return ETCs, ETCs that elect to
receive Connect America Phase II
model-based support, and ETCs
awarded support to serve fixed locations
through a competitive bidding process
shall have the following broadband
reporting obligations:
*
*
*
*
*
(4) Recipients subject to the
requirements of § 54.310(c) shall report
the number of locations for each state
and locational information, including
geocodes, where they are offering
service at the requisite speeds.
Recipients of Phase II Auction support
and Remote Areas Fund support shall
also report the technology they use to
serve those locations.
(b) Broadband deployment
certifications. Rate-of Return ETCs,
ETCs that elect to receive Connect
America Phase II model-based support,
and ETCs awarded support through a
competitive bidding process shall have
the following broadband deployment
certification obligations:
*
*
*
*
*
(4) Recipients of Connect America
Phase II auction support shall provide:
By the last business day of the second
calendar month following each service
milestone in § 54.310(c), a certification
that by the end of the prior support year,
it was offering broadband meeting the
requisite public interest obligations
specific in § 54.309 to the required
percentage of its supported locations in
each state as set forth in § 54.310(c).
(5) Recipients of Remote Areas Fund
support shall provide: By the last
business day of the second calendar
month following each service milestone
specified by the Commission, a
certification that by the end of the prior
support year, it was offering broadband
meeting the requisite public interest
obligations to the required percentage of
its supported locations in each state.
(c) Filing deadlines. In order for a
recipient of high-cost support to
continue to receive support for the
following calendar year, or retain its
eligible telecommunications carrier
designations, it must submit the annual
reporting information as set forth below.
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
44452
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
(1) Price cap carriers that accepted
Phase II model-based support and rateof-return carriers must submit the
annual reporting information required
by March 1 as described in paragraphs
(a) and (b) of this section. Eligible
telecommunications carriers that file
their reports after the March 1 deadline
shall receive a reduction in support
pursuant to the following schedule:
(i) An eligible telecommunications
carrier that files after the March 1
deadline, but by March 9, will have its
support reduced in an amount
equivalent to seven days in support;
(ii) An eligible telecommunications
carrier that files on or after March 9 will
have its support reduced on a pro-rata
daily basis equivalent to the period of
non-compliance, plus the minimum
seven-day reduction;
(iii) Grace period. An eligible
telecommunications carrier that submits
the annual reporting information
required by this section after March 1
but before March 5 will not receive a
reduction in support if the eligible
telecommunications carrier and its
holding company, operating companies,
and affiliates as reported pursuant to
§ 54.313(a)(8) in their report due July 1
of the prior year have not missed the
March 1 deadline in any prior year.
(2) Recipients of support to serve
fixed locations awarded through a
competitive bidding process must
submit the annual reporting information
required by the last business day of the
second calendar month following the
relevant support years as described in
paragraphs (a) and (b) of this section.
Eligible telecommunications carriers
that file their reports after the deadline
shall receive a reduction in support
pursuant to the following schedule:
(i) An eligible telecommunications
carrier that files after the deadline, but
within seven days of the deadline, will
have its support reduced in an amount
equivalent to seven days in support;
(ii) An eligible telecommunications
carrier that filed on or after the eighth
day following the deadline will have its
support reduced on a pro-rata daily
basis equivalent to the period of noncompliance, plus the minimum sevenday reduction;
(iii) Grace period. An eligible
telecommunications carrier that submits
the annual reporting information
required by this section within three
days of the deadline will not receive a
reduction in support if the eligible
telecommunications carrier and its
holding company, operating companies,
and affiliates as reported pursuant to
§ 54.313(a)(8) in their report due July 1
of the prior year have not missed the
deadline in any prior year.
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
9. Subpart J, consisting of §§ 54.801
through 54.806, is added to read as
follows:
■
Subpart J—Remote Areas Fund
Sec.
54.801 Use of competitive bidding for
Remote Areas Fund.
54.802 Geographic areas eligible for Remote
Areas Fund support.
54.803 Provider eligibility.
54.804 Application process.
54.805 [Reserved]
54.806 Remote Areas Fund reporting
obligations.
Subpart J—Remote Areas Fund
§ 54.801 Use of competitive bidding for
Remote Areas Fund.
The Commission will use competitive
bidding, as provided in part 1, subpart
AA of this chapter, to determine the
recipients of Remote Areas Fund
support and the amount of support that
they may receive for specific geographic
areas, subject to applicable post-auction
procedures.
§ 54.802 Geographic areas eligible for
Remote Areas Fund support.
Remote Areas Fund support may be
made available for census blocks
identified as eligible by public notice.
§ 54.803
Provider eligibility.
(a) Any eligible telecommunications
carrier is eligible to receive Remote
Areas Fund support in eligible areas.
(b) An entity may obtain eligible
telecommunications carrier designation
after public notice of winning bidders in
the Remote Areas Fund auction.
(c) To the extent any entity seeks
eligible telecommunications carrier
designation prior to public notice of
winning bidders for Remote Areas Fund
support, its designation as an eligible
telecommunications carrier may be
conditional subject to the receipt of
Remote Areas Fund support.
§ 54.804
Application process.
(a) Any entity qualified to bid in the
Phase II auction pursuant to § 54.315(a)
shall be pre-qualified to bid in the
Remote Areas Fund auction, subject to
the requirement that there be no
material change in any information
previously submitted in the application
to bid for Phase II support.
(b) In addition to providing
information specified in § 1.21001(b) of
this chapter and any other information
required by the Commission, any
applicant to participate in competitive
bidding for Remote Areas Fund support
shall:
(1) Provide ownership information as
set forth in § 1.2112(a) of this chapter;
(2) Certify that the applicant is
financially and technically qualified to
PO 00000
Frm 00040
Fmt 4701
Sfmt 4700
meet the public interest obligations
established for Remote Areas Fund
support;
(3) Disclose its status as an eligible
telecommunications carrier to the extent
applicable and certify that it
acknowledges that it must be designated
as an eligible telecommunications
carrier for the area in which it will
receive support prior to being
authorized to receive support;
(4) Describe the technology or
technologies that will be used to
provide service for each bid;
(5) Submit any information required
to establish eligibility for any bidding
weights adopted by the Commission in
an order or public notice;
(6) To the extent that an applicant
plans to use spectrum to offer its voice
and broadband services, demonstrate it
has the proper authorizations, if
applicable, and access to operate on the
spectrum it intends to use, and that the
spectrum resources will be sufficient to
cover peak network usage and deliver
the minimum performance requirements
to serve all of the fixed locations in
eligible areas, and certify that it will
retain its access to the spectrum for the
term of support; and
(7) Submit specified operational and
financial information.
(i) Submit a certification that the
applicant has provided a voice,
broadband, and/or electric transmission
or distribution service for at least two
years or that it is a wholly-owned
subsidiary of such an entity, and
specifying the number of years the
applicant or its parent company has
been operating, and submit the financial
statements from the prior fiscal year that
are audited by a certified public
accountant. If the applicant is not
audited in the ordinary course of
business, in lieu of submitting audited
financial statements it must certify that
it will provide financial statements from
the prior fiscal year that are audited by
a certified independent public
accountant by a specified deadline
during the long-form application review
process.
(A) If the applicant has provided a
voice and/or broadband service it must
certify that it has filed FCC Form 477s
as required during this time period.
(B) If the applicant has operated only
an electric transmission or distribution
service, it must submit qualified
operating or financial reports that it has
filed with the relevant financial
institution for the relevant time period
along with a certification that the
submission is a true and accurate copy
of the reports that were provided to the
relevant financial institution.
E:\FR\FM\07JYR2.SGM
07JYR2
sradovich on DSK3GDR082PROD with RULES2
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
(ii) If an applicant cannot meet the
requirements in paragraph (b)(7)(i) of
this section, in the alternative it must
submit the audited financial statements
from the three most recent fiscal years
and a letter of interest from a bank
meeting the qualifications set forth in
paragraph (d)(2) of this section, that the
bank would provide a letter of credit as
described in paragraph (d) of this
section to the bidder if the bidder were
selected for bids of a certain dollar
magnitude.
(c) Application by winning bidders for
Remote Areas Fund support—(1)
Deadline. As provided by public notice,
winning bidders for Remote Areas Fund
support shall file an application for
Remote Areas Fund support no later
than the number of business days
specified after the public notice
identifying them as winning bidders.
(2) Application contents. An
application for Remote Areas Fund
support must contain:
(i) Identification of the party seeking
the support, including ownership
information as set forth in § 1.2112(a) of
this chapter;
(ii) Certification that the applicant is
financially and technically qualified to
meet the public interest obligations for
Remote Areas Fund support in each area
for which it seeks support;
(iii) Certification that the applicant
will meet the relevant public interest
obligations, including the requirement
that it will offer service at rates that are
equal or lower to the Commission’s
reasonable comparability benchmarks
for fixed wireline services offered in
urban areas;
(iv) A description of the technology
and system design the applicant intends
to use to deliver voice and broadband
service, including a network diagram
which must be certified by a
professional engineer. The professional
engineer must certify that the network is
capable of delivering, to at least 95
percent of the required number of
locations in each relevant state, voice
and broadband service that meets the
requisite performance requirements for
Remote Areas Fund support;
(v) Certification that the applicant
will have available funds for all project
costs that exceed the amount of support
to be received from the Remote Areas
Fund for the first two years of its
support term and that the applicant will
comply with all program requirements,
including service milestones;
(vi) A description of how the required
construction will be funded, including
financial projections that demonstrate
the applicant can cover the necessary
debt service payments over the life of
the loan, if any;
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
(vii) Certification that the party
submitting the application is authorized
to do so on behalf of the applicant; and
(viii) Such additional information as
the Commission may require.
(3) No later than the number of days
provided by public notice, the applicant
shall submit a letter from a bank
meeting the eligibility requirements
outlined in paragraph (d) of this section
committing to issue an irrevocable
stand-by letter of credit, in the required
form, to the winning bidder. The letter
shall at a minimum provide the dollar
amount of the letter of credit and the
issuing bank’s agreement to follow the
terms and conditions of the
Commission’s model letter of credit.
(4) No later than 180 days after the
public notice identifying them as a
winning bidder, bidders that did not
submit audited financial statements in
their short-form application pursuant to
paragraph (b)(7)(i) of this section must
submit the financial statements from the
prior fiscal year that are audited by a
certified independent public
accountant.
(5) No later than 180 days after the
public notice identifying it as a winning
bidder, the applicant shall certify that it
is an eligible telecommunications
carrier in any area for which it seeks
support and submit the relevant
documentation supporting that
certification.
(6) Application processing. (i) No
application will be considered unless it
has been submitted in an acceptable
form during the period specified by
public notice. No applications
submitted or demonstrations made at
any other time shall be accepted or
considered.
(ii) Any application that, as of the
submission deadline, either does not
identify the applicant seeking support
as specified in the public notice
announcing application procedures or
does not include required certifications
shall be denied.
(iii) An applicant may be afforded an
opportunity to make minor
modifications to amend its application
or correct defects noted by the
applicant, the Commission, the
Administrator, or other parties. Minor
modifications include correcting
typographical errors in the application
and supplying non-material information
that was inadvertently omitted or was
not available at the time the application
was submitted.
(iv) Applications to which major
modifications are made after the
deadline for submitting applications
shall be denied. Major modifications
include, but are not limited to, any
changes in the ownership of the
PO 00000
Frm 00041
Fmt 4701
Sfmt 4700
44453
applicant that constitute an assignment
or change of control, or the identity of
the applicant, or the certifications
required in the application.
(v) After receipt and review of the
applications, a public notice shall
identify each winning bidder that may
be authorized to receive Remote Areas
Fund support after the winning bidder
submits a letter of credit and an
accompanying opinion letter as
described in paragraph (d) of this
section, in a form acceptable to the
Commission. Each such winning bidder
shall submit a letter of credit and
accompanying opinion letter as required
by paragraph (d) of this section, in a
form acceptable to the Commission no
later than the number of business days
provided by public notice.
(vi) After receipt of all necessary
information, a public notice will
identify each winning bidder that is
authorized to receive Remote Areas
Fund support.
(d) Letter of credit. Before being
authorized to receive Remote Areas
Fund support, a winning bidder shall
obtain an irrevocable standby letter of
credit which shall be acceptable in all
respects to the Commission.
(1) Value. Each recipient authorized
to receive Remote Areas Fund support
shall maintain the standby letter of
credit or multiple standby letters of
credit in an amount equal to at a
minimum the amount of Remote Areas
Fund support that has been disbursed
and that will be disbursed in the coming
year, until the Universal Service
Administrative Company has verified
that the recipient met the final service
milestone as described in § 54.310(c).
(i) Once the recipient has met its 60
percent service milestone, it may obtain
a new letter of credit or renew its
existing letter of credit so that it is
valued at a minimum at 90 percent of
the total support amount already
disbursed plus the amount that will be
disbursed in the coming year.
(ii) Once the recipient has met its 80
percent service milestone, it may obtain
a new letter of credit or renew its
existing letter of credit so that it is
valued at a minimum at 80 percent of
the total support that has been
disbursed plus the amount that will be
disbursed in the coming year.
(2) The bank issuing the letter of
credit shall be acceptable to the
Commission. A bank that is acceptable
to the Commission is:
(i) Any United States bank
(A) That is insured by the Federal
Deposit Insurance Corporation, and
(B) That has a bank safety rating
issued by Weiss of B- or better; or
E:\FR\FM\07JYR2.SGM
07JYR2
44454
Federal Register / Vol. 81, No. 130 / Thursday, July 7, 2016 / Rules and Regulations
sradovich on DSK3GDR082PROD with RULES2
(ii) CoBank, so long as it maintains
assets that place it among the 100 largest
United States Banks, determined on
basis of total assets as of the calendar
year immediately preceding the
issuance of the letter of credit and it has
a long-term unsecured credit rating
issued by Standard & Poor’s of BBB- or
better (or an equivalent rating from
another nationally recognized credit
rating agency); or
(iii) The National Rural Utilities
Cooperative Finance Corporation, so
long as it maintains assets that place it
among the 100 largest United States
Banks, determined on basis of total
assets as of the calendar year
immediately preceding the issuance of
the letter of credit and it has a long-term
unsecured credit rating issued by
Standard & Poor’s of BBB- or better (or
an equivalent rating from another
nationally recognized credit rating
agency); or
(iv) Any non-United States bank:
(A) That is among the 50 largest nonU.S. banks in the world, determined on
the basis of total assets as of the end of
the calendar year immediately
preceding the issuance of the letter of
credit (determined on a U.S. dollar
equivalent basis as of such date);
(B) Has a branch office in the District
of Columbia or such other branch office
agreed to by the Commission;
VerDate Sep<11>2014
17:32 Jul 06, 2016
Jkt 238001
(C) Has a long-term unsecured credit
rating issued by a widely-recognized
credit rating agency that is equivalent to
a BBB- or better rating by Standard &
Poor’s; and
(D) Issues the letter of credit payable
in United States dollars
(3) A winning bidder for Remote
Areas Fund support shall provide with
its letter of credit an opinion letter from
its legal counsel clearly stating, subject
only to customary assumptions,
limitations, and qualifications, that in a
proceeding under Title 11 of the United
States Code, 11 U.S.C. 101 et seq. (the
‘‘Bankruptcy Code’’), the bankruptcy
court would not treat the letter of credit
or proceeds of the letter of credit as
property of the winning bidder’s
bankruptcy estate under section 541 of
the Bankruptcy Code.
(4) Authorization to receive Remote
Areas Fund support is conditioned
upon full and timely performance of all
of the requirements set forth in this
section, and any additional terms and
conditions upon which the support was
granted.
(i) Failure by a Remote Areas Fund
support recipient to meet its service
milestones as required by § 54.310 will
trigger reporting obligations and the
withholding of support as described in
§ 54.320(c). Failure to come into full
compliance within 12 months will
PO 00000
Frm 00042
Fmt 4701
Sfmt 9990
trigger a recovery action by the
Universal Service Administrative
Company. If the Remote Areas Fund
recipient does not repay the requisite
amount of support within six months,
the Universal Service Administrative
Company will be entitled to draw the
entire amount of the letter of credit and
may disqualify the Remote Areas Fund
support recipient from the receipt of
Remote Areas Fund support or
additional universal service support.
(ii) The default will be evidenced by
a letter issued by the Chief of the
Wireline Competition Bureau or the
Wireless Telecommunications Bureau,
or their respective designees, which
letter, attached to a standby letter of
credit draw certificate, shall be
sufficient for a draw on the standby
letter of credit for the entire amount of
the standby letter of credit.
§ 54.805
[Reserved]
§ 54.806 Remote Areas Fund reporting
obligations.
Recipients of Remote Areas Fund
support shall be subject to the reporting
obligations set forth in § 54.313.
[FR Doc. 2016–14506 Filed 7–6–16; 8:45 am]
BILLING CODE 6712–01–P
E:\FR\FM\07JYR2.SGM
07JYR2
Agencies
[Federal Register Volume 81, Number 130 (Thursday, July 7, 2016)]
[Rules and Regulations]
[Pages 44413-44454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-14506]
[[Page 44413]]
Vol. 81
Thursday,
No. 130
July 7, 2016
Part II
Federal Communications Commission
-----------------------------------------------------------------------
47 CFR Parts 1 and 54
Connect America Fund, ETC Annual Reports and Certifications, Rural
Broadband Experiments; Final Rule
Federal Register / Vol. 81 , No. 130 / Thursday, July 7, 2016 / Rules
and Regulations
[[Page 44414]]
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 1 and 54
[WC Docket Nos. 10-90, 14-58, 14-259; FCC 16-64]
Connect America Fund, ETC Annual Reports and Certifications,
Rural Broadband Experiments
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In this document, the Federal Communications Commission
(Commission) adopts rules to implement a competitive bidding process
for Phase II of the Connect America Fund that will harness market
forces to expand broadband in targeted rural areas. The Commission also
adopts rules to establish the framework for the Remote Areas Fund
auction to address those areas that receive no winning bids in the
Phase II auction.
DATES: Effective August 8, 2016, except for the amendments to
Sec. Sec. 1.21001(b)(6), 54.313(e)(2), 54.315, 54.316(a)(4), (b)(4)
and (5), and (c)(2), 54.804 (b) through (d), and 54.806, which contain
new or modified information collection requirements that will not be
effective until approved by the Office of Management and Budget. The
Federal Communications Commission will publish a document in the
Federal Register announcing the effective date for those sections.
FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition
Bureau, (202) 418-0428 or TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order in WC Docket Nos. 10-90, 14-58, 14-259; FCC 16-64, adopted on
May 25, 2016 and released on May 26, 2016. The full text of this
document is available for public inspection during regular business
hours in the FCC Reference Center, Room CY-A257, 445 12th Street SW.,
Washington, DC 20554, or at the following Internet address:https://apps.fcc.gov/edocs_public/attachmatch/FCC-16-64A1.pdf.
The Further Notice of Proposed Rulemaking (FNPRM) that was adopted
concurrently with the Report and Order is published elsewhere in this
issue of the Federal Register.
I. Introduction
1. Over the last several years, the Commission has engaged in a
modernization of its universal service regime to support networks
capable of providing voice and broadband, including developing a new
forward-looking cost model to calculate the cost of providing service
in rural and high-cost areas. In 2015, 10 price cap carriers accepted
an offer of Phase II support calculated by a cost model in exchange for
a state-level commitment to deploy and maintain voice and broadband
service in the high-cost areas in their respective states. With this
Report and Order (Order), the Commission now adopts rules to implement
a competitive bidding process for Phase II of the Connect America Fund.
2. Specifically, building on decisions already made by the
Commission, in this Order, the Commission:
Adopt public interest obligations for recipients of
support awarded through the Phase II competitive bidding process, that
will be known in advance of the auction and that will continue for the
duration of the term of support, recognizing that competitive bidding
is likely to be more efficient if potential bidders know what their
performance standards will be before bids are made. In particular, the
Commission establishes four technology-neutral tiers of bids available
for bidding with varying speed and usage allowances, all at reasonably
comparable rates, and for each tier will differentiate between bids
that would commit to either lower or higher latency.
[cir] The Commission's minimum performance tier requires that
bidders commit to provide broadband speeds of at least 10 Mbps
downstream and 1 Mbps upstream (10/1 Mbps) and offer at least 150
gigabytes (GB) of monthly usage.
[cir] The Commission's baseline performance tier requires that
bidders commit to provide at least 25 Mbps downstream and 3 Mbps
upstream (25/3 Mbps) and offer a minimum usage allowance of 150 GB per
month, or that reflects the average usage of a majority of fixed
broadband customers, using Measuring Broadband America data or a
similar data source, whichever is higher.
[cir] The Commission's above-baseline performance tier requires
that bidders commit to provide at least 100 Mbps downstream and 20 Mbps
upstream (100/20 Mbps) and offer an unlimited monthly usage allowance.
[cir] The Commission's Gigabit performance tier requires that
bidders commit to provide at least 1 Gigabit per second (Gbps)
downstream and 500 Mbps upstream and offer an unlimited monthly usage
allowance.
[cir] For each of the four tiers, bidders will designate one of two
latency performance levels: (1) Low latency bidders will be required to
meet 95 percent or more of all peak period measurements of network
round trip latency at or below 100 milliseconds (ms), or (2) High
latency bidders will be required to meet 95 percent or more of all peak
period measurements of network round trip latency at or below 750 ms
and, with respect to voice performance, demonstrate a score of four or
higher using the Mean Opinion Score (MOS).
Adopt the same interim service milestones for winning
bidders in the Phase II auction as for price cap carriers that accepted
Phase II model-based support.
Finalize the Commission's decisions regarding areas
eligible for the Phase II competitive bidding process.
Establish a budget for the Phase II competitive bidding
process of $215 million in annual support.
Provide general guidance on auction design, with the
specific details to be determined by the Commission at a future date in
the Auction Procedures Public Notice, after further opportunity for
comment. The Commission will use weights to account for the different
characteristics of service offerings that bidders propose to offer when
ranking bids. The Commission expresses its preference for a multi-round
auction format and for setting the minimum biddable unit as a census
block group containing any eligible census blocks. The Commission
concludes that reserve prices will not exceed support amounts
determined by the Connect America Cost Model (CAM).
Adopt a two-step application process, similar to
Commission spectrum auctions and the Mobility Fund Phase I and Tribal
Mobility Fund Phase I auctions. In the pre-auction short-form
application, a potential bidder will need to establish its baseline
financial and technical capabilities in order to be eligible to bid. In
the long-form review process, winning bidders will be required to
provide additional information regarding their qualifications. They
will be required to obtain an acceptable letter of credit and
designation as an eligible telecommunications carrier (ETC) before
funding is authorized.
Establish a baseline forfeiture for bidders that default
before funding authorization.
Establish a 180-day post-auction deadline for winning
bidders to submit proof of their ETC designation during long-form
review and forbear from the section 214(e)(5) service area conformance
requirements.
Adopt reporting requirements that will enable the
Commission to monitor
[[Page 44415]]
recipients' progress in meeting their interim deployment obligations,
and a process by which the Wireline Competition Bureau (Bureau) or the
Wireless Telecommunications Bureau will authorize the Universal Service
Administrative Company (USAC) to draw on a letter of credit in the
event of performance default.
Adopt rules to establish the framework for the Remote
Areas Fund, which will award support through a competitive bidding
process to occur expeditiously after conclusion of the Phase II
auction.
II. Public Interest Obligations
A. Performance Requirements
3. Discussion. Consistent with the Commission's previous decisions
on performance requirements and the record in this proceeding, the
Commission now establishes technology-neutral standards for the Phase
II auction as described below. The Commission will accept bids for four
service tiers with varying speed and usage allowances, and for each
tier will differentiate between bids that would offer either lower or
higher latency. The Commission has already decided that 10/1 Mbps
should not be the Commission's end goal for support recipients over a
10-year term, and that is why it adopts a variety of service tiers for
bids in the Phase II auction. The Commission is guided by the statutory
goal in section 254 of ensuring that consumers in rural and high-cost
areas of the country have access to advanced telecommunications and
information services that are reasonably comparable to those services
in urban areas, at reasonably comparable rates. The Commission expects
and encourages participants to innovate and provide better service over
the 10-year term.
4. The following charts summarize the Commission's approach:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Performance tier Speed Usage allowance
--------------------------------------------------------------------------------------------------------------------------------------------------------
Minimum.................................. >=10/1 Mbps................. >=150 GB.
Baseline................................. >=25/3 Mbps................. >=150 GB or U.S. median, whichever is higher.
Above Baseline........................... >=100/20 Mbps............... Unlimited.
Gigabit.................................. >=1 Gbps/500 Mbps........... Unlimited.
--------------------------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
Latency Requirement
------------------------------------------------------------------------
Low Latency........................... <=100 ms.
High Latency.......................... <=750 ms & MOS of >=4.
------------------------------------------------------------------------
5. The tiers set forth below are grounded in prior Commission
Orders setting performance obligations requirements for speed and
usage, as well as latency, that together must be met for the receipt of
high-cost universal service support, and reflect the diversity of
broadband offerings in the marketplace today. The Commission wants to
maximize the number of consumers served within its finite budget. At
the same time, the Commission sees the value to consumers in rural
markets of having access to service during the 10-year term of support
that exceeds its baseline requirements. The Commission wants to ensure
that rural America is not left behind, and the consumers in those areas
benefit from innovation and advances in technology. All things
considered, the Commission values higher speeds over lower speeds,
higher usage allowances over lower usage allowances, and lower latency
over higher latency. The Commission also sees the benefits to achieving
its other universal service objectives if a Phase II service provider
will be able to provide broadband adequate to meet the needs of the
entire community, including schools, libraries and rural health care
providers, potentially reducing the overall cost of USF to consumers.
6. As discussed further below, all bids will be considered
simultaneously, so that bidders that propose to meet one set of
performance standards will be directly competing against bidders that
propose to meet other performance standards. The Commission believes
that this approach strikes a balance by providing sufficient
granularity with respect to the performance characteristics of
broadband offerings, while maintaining an auction design that will
encourage a broad range of providers to participate in the auction. The
Commission discusses its approach to ranking these service tiers below
and seeks comment in the concurrently adopted Further Notice on auction
procedures to assign weights to each tier and latency combination.
7. The Commission recognizes that some commenters have expressed
concerns that it is difficult to plan a network deployment not knowing
the performance obligations that may exist at the end of the 10-year
term. Competitive bidding is likely to be more efficient if potential
bidders know what their performance standards will be before bids are
made. The Commission finds that establishing the service requirements
now is preferable to doing so after support has been awarded, as it
will provide more certainty for potential bidders. Winning bidders that
comply with the performance requirements the Commission establishes
today for each tier of service for the duration of the 10-year term
will be deemed in compliance even if the Commission subsequently
establishes different standards in a later proceeding (e.g., the
standards that will apply when it awards support through a Phase III
auction after the six-year term of support for price cap carriers
accepting the offer of model-based support).
8. Minimum Performance Tier. As a minimum, the Commission will
consider bids that will meet standards for speed consistent with those
applicable to the price cap carriers that accepted the offer of model-
based support. Specifically, in the Phase II auction, the Commission
will allow for bids that offer at least 10/1 Mbps speeds and offer at
least 150 GB of monthly usage.
9. The Commission does so in recognition that some bidders may not
be able to meet the speed requirement it establishes below for baseline
performance in some areas. For example, there may be some areas where
wireline telecommunications carriers--either incumbents or competitive
carriers--may extend fiber closer to the end user but will only be able
to provide 10/1 Mbps service. Providing flexibility for bidders to
relax the speed standard where necessary will enable a broader range of
providers to participate in the Phase II competitive bidding process.
10. The Commission is not persuaded to further roll back the
minimum speed for Phase II to 4/1 Mbps, as WISPA and USTelecom have
suggested. The Commission found ample basis in the record for revising
the minimum speed requirement to 10/1 Mbps, when it did so in December
2014, and the most recent data indicate that a majority of Americans
subscribe to speeds today that are higher than 10/1 Mbps.
11. The Commission recognizes that wireless and satellite providers
have argued that a minimum usage allowance of even 100 GB is
unrealistic for spectrum-based networks that have capacity limitations,
and that the standards should be set at levels that do not exclude
spectrum-based services.
[[Page 44416]]
The Commission notes, however, that winning bidders will be free to
offer an array of service plans, not all of which would provide the
minimum 150 GB usage allowance. The 150 GB plan could thus be one of
several offerings. The Commission merely require that bidders must
offer at least one service offering at a reasonably comparable rate
that meets the minimum usage allowance.
12. Similarly, the Commission is not persuaded that it should relax
this requirement to permit bidders to provide only 50 GB of usage, as
suggested by one commenter. Winning bidders will be receiving support
that will enable them to offer a service plan with the required usage
allowance, and they will be free to offer other service plans with a
lower usage allowance at a lower price, which may well prove attractive
to consumers in the marketplace. The Commission is requiring only that
at least one offering in Phase II funded areas meets or exceeds all
requirements.
13. Baseline Performance Tier. The Commission now concludes that
the baseline tier for the Phase II auction will be speeds of 25 Mbps
downstream and 3 Mbps upstream. The Commission's decision to establish
this baseline performance standard for Phase II based on the highest
speed adopted by a majority of fixed broadband subscribers builds on
the approach it adopted in December 2014.
14. For usage, consistent with the approach recently adopted for
rate-of-return carriers electing the voluntary path to the model, the
Commission requires bidders in this baseline tier to offer over the
course of the 10-year term a minimum usage allowance of 150 GB per
month, or a usage allowance that reflects the average usage of a
majority of fixed broadband customers, using Measuring Broadband
America data or a similar data source, whichever is higher, at a price
that is reasonably comparable to similar offerings in urban areas. The
Commission concludes that this standard will ensure that rural
consumers will have available an offering that enables them to utilize
their broadband connections in ways similar to consumers in urban
areas, where fixed broadband services are widely available, while its
reasonable comparability benchmarks will ensure that usage allowance is
provided at a price that is reasonably comparable to service offerings
with similar usage allowances in urban areas.
15. Above-Baseline Performance Tier. The Commission also recognizes
that in some areas of the country, there may be bidders willing to
deploy networks that will deliver performance that exceeds its baseline
requirements for the Phase II auction. For a bid to qualify in this
tier, the bidder must commit to deploying a network that is fully
capable of offering speeds and usage allowances that exceed the
baseline standards that the Commission establishes today for the Phase
II auction to all locations. Consistent with proposals in the record,
the Commission will accept bids from entities that propose to offer 100
Mbps downstream and 20 Mbps upstream throughout the 10-year term and
require these bidders to offer an unlimited monthly usage allowance.
16. Gigabit Performance Tier. Finally, the Commission establishes a
top performance tier for areas of the country in which there may be
bidders willing to deploy networks that will deliver speeds that
substantially exceed its baseline speed requirements for the Phase II
auction. Specifically, the Commission will consider bids from entities
that commit to offer 1 Gbps downstream and 500 Mbps upstream and an
unlimited monthly usage allowance.
17. Latency. For each tier described above, bidders will designate
one of two latency performance levels: (1) Low latency or (2) high
latency. Providing flexibility for bidders to designate their latency
performance level for each of the given performance tiers set out above
will enable a broader range of providers to participate in the Phase II
competitive bidding process.
18. Recently, the Commission adopted a minimum latency requirement
that 95 percent or more of all peak period measurements of network
round trip latency are at or below 100 milliseconds for rate-of-return
carriers that elect the voluntary path to model support. That standard
also applies to price cap carriers that accepted the Phase II offer of
model-based support. The Commission requires bidders that wish to
submit low-latency bids to meet the same 100 millisecond latency
standard.
19. However, the Commission recognizes that some bidders may not be
able to meet that latency standard. For example high-earth orbit
satellite providers cannot meet the latency requirement, but may be
willing to offer higher speeds. After full consideration of the record,
the Commission now concludes that bidders designating high latency
performance will be required to meet a two-part standard for the
latency of both their voice and broadband service: (1) Requirement that
95 percent or more of all peak period measurements of network round
trip latency are at or below 750 milliseconds, and (2) with respect to
voice performance, the Commission requires high latency bidders to
demonstrate a score of four or higher using the Mean Opinion Score
(MOS), similar to the standard that the Commission adopted for one
category of rural broadband experiments.
20. The Commission is not persuaded that it should eliminate
altogether any millisecond measure of latency for Phase II support
recipients. Some parties have urged the Commission to adopt alternative
measures of service quality for recipients of Connect America Fund
support, such as requiring voice service to be provided with an ``R
Factor'' score at or above a minimum threshold value, and a Web page
loading time standard. The Commission declines to adopt an alternative
approach that would only use a voice quality test for providers that
cannot meet the 100 ms latency standard. The Commission finds that the
better approach is to measure latency the same way for all providers,
but for entities submitting high latency bids to set a higher benchmark
and require a demonstration of MOS of four or higher.
21. The Commission rejects arguments that a 100 ms latency
designation should apply only to ``latency-sensitive traffic.'' Low
latency, that is, shorter delays, is essential for most network-based
applications and critical for others, such as VoIP and other
interactive and highly interactive applications. Thus, requiring
objectively measured latency performance standards is in line with
network-based applications requirements and consumer-based perceptions
of acceptable performance, particularly for voice services.
22. At the same time, the Commission is willing to entertain bids
from entities that can only provide high latency, in the interest of
making this auction as competitive as possible. For those providers
offering high latency services, the Commission emphasizes the
importance of providing quality voice services. The Commission
particularly welcomes solutions such as the terrestrial voice service
suggested by ViaSat. While the Commission does not adopt the MOS
scoring metric as a substitute for the milliseconds of latency
requirement, it believes it can be used to help ensure quality voice
service performance for bids designated high latency. Thus, as noted
above, in addition to the metrics set forth above, the Commission
requires that bidders that exhibit high latency must be prepared to
demonstrate a MOS of four or higher throughout the term of support. The
Commission recognizes
[[Page 44417]]
that the MOS metric is a measure of perceived quality, and requires
entities taking advantage of this standard to be prepared to submit
testing results that are specific to their CAF-funded areas. Recipients
must provide this level of voice quality to all consumers in CAF-funded
areas, not just to a subset of locations.
23. Bidders in the Phase II competitive bidding process that seek
to meet the higher latency standard will be free to bid on all areas
that are eligible for Phase II competitive bidding; the Commission will
not limit them to bidding on census blocks that the cost model has
determined are extremely high-cost. The Commission does not want to
preclude the possibility, however, of consumers in these areas gaining
access to low latency service in the years ahead. The Commission also
would have concerns if consumers were widely dissatisfied with the
quality of voice service associated with a double hop call. For that
reason, the Commission reserves the option of including such areas in
the auction that will occur shortly before the end of the six-year term
of support for the price cap carriers that accept model-based support
(i.e., before the end of 2020), if subscription levels in CAF-funded
areas are more than 35 percent lower than the national average at that
time. The then-current recipient of support as well as other entities
would be free to bid for support to meet whatever performance standards
that will apply to that Phase III auction. Absent a decision by the
Commission to include such areas in the Phase III auction, however,
Phase II winning bidders that elect to provide high-latency service
will receive support for a 10-year term.
24. The Commission concludes that applicants seeking to deploy
spectrum-based technologies that can meet the performance requirements
will be eligible to bid in any tier. To ensure that these bidders have
the capabilities to meet all standards, however, the Commission will
require bidders proposing to use spectrum-based technologies to
demonstrate that they have the proper authorizations or licenses, if
applicable, and access to spectrum, to reach the fixed locations within
the areas for which they seek support.
25. The Commission does not agree with commenters who argue that
setting performance standards that could potentially exclude certain
technologies disserves the public interest because it conflicts with
the principle of competitive neutrality. The principle of competitive
neutrality does not preclude the Commission from meeting other
reasonable regulatory objectives, including as discussed above, the
statutory requirement to ensure reasonably comparable service. The
adoption of these technology-neutral tiers of performance standards,
which are designed to meet reasonable regulatory objectives, is not
objectionable simply because some service providers cannot meet the
standards for a particular tier.
26. By soliciting bidders that make commitments to meet
significantly higher performance standards, the Commission furthers the
goal of providing access to advanced telecommunications and information
services in all regions of the nation. By also entertaining bids from
providers meeting service tiers that the Commission has previously
established in other contexts, it helps ensure that services in rural
and high-cost areas are reasonably comparable to those services
provided in urban areas at reasonably comparable rates, and that
consumers in these areas will not be left behind. Finally, the
Commission emphasizes that to the extent there are eligible areas where
there are no bidders willing to meet the standards for any of these
tiers of service, it intends to take further action to ensure that
those consumers are not left behind. As discussed below, the Commission
will proceed expeditiously to conduct a subsequent Remote Areas Fund
auction with further relaxed standards.
B. Interim Deployment Obligations
27. Discussion. The Commission now adopts its proposal to set the
same service milestones for recipients of Phase II support awarded
through the competitive bidding process as those that apply to price
cap carriers that accept a state-level commitment. The Commission
requires deployment to be completed within six years of funding
authorization. In particular, as shown in the chart below, the
Commission requires the entities authorized to receive Phase II auction
support to complete construction and commercially offer service to 40
percent of the requisite number of locations in a state by the end of
the third year of funding authorization, an additional 20 percent in
the subsequent years, with 100 percent by the end of the sixth year.
The Commission recognizes these interim deployment milestones may not
be appropriate for non-terrestrial providers or providers that have
already deployed the infrastructure they intend to use to fulfill their
Phase II obligations. The Commission seeks further comment on this
issue in the concurrently adopted Further Notice.
Service Milestones for Phase II Support Recipients Awarded Through
Competitive Bidding
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Year 1........................................................ **
Year 2........................................................ **
Year 3........................................................ 40
Year 4........................................................ 60
Year 5........................................................ 80
Year 6........................................................ 100
------------------------------------------------------------------------
28. When the Commission adopted a 10-year term for Phase II support
awarded through competitive bidding in April 2014, it did not intend to
suggest that it also would provide those recipients 10 years to meet
their build-out obligations. Rather, the Commission provided for a
longer term in order to provide additional support to those who
competed for such support. Given the importance of the availability of
broadband in the 21st century, one of the Commission's policy goals is
to accelerate the deployment of broadband-capable networks. Spreading
the service milestones over the entire 10-year term would slow the
availability of new broadband infrastructure in these high-cost areas.
Most winning bidders will likely undertake projects that are smaller in
scale than the state-wide commitments undertaken by price cap carriers
and so should be able to complete construction and commercially offer
service well before the end of the sixth year. Therefore, the
Commission does not believe it necessary to grant additional
flexibility at this time.
C. Flexibility in Meeting Deployment Obligations
29. Discussion. The Commission concludes that recipients of support
through a competitive bidding process should similarly have some
flexibility in their deployment obligations to address unforeseeable
challenges to meeting those obligations. In adopting flexibility in
deployment obligations for price cap carriers accepting model-based
support, the Commission recognized that the ``facts on the ground''
when they are deploying facilities in a state may necessitate some
flexibility regarding the number of locations. Similar issues may be
faced by recipients of support awarded through a competitive process.
Most commenters supported providing some flexibility in the number of
required locations.
30. The Commission finds that requiring deployment to at least 95
percent of eligible locations is equally appropriate for recipients of
Phase II support awarded through competitive
[[Page 44418]]
bidding. The Commission recognizes that for these Phase II recipients,
as well as model-based support recipients, ``there may be a variety of
unforeseen factors, after the initial planning stage, that can cause
significant changes as a network is actually being deployed in the
field.'' The Commission therefore will require recipients of Phase II
support awarded through competitive bidding to deploy to at least 95
percent of the funded locations in each state where they are receiving
support. At the end of the support term, recipients that have deployed
to at least 95 percent, but less than 100 percent, of the number of
funded locations will be required to refund support based on the number
of funded locations left unserved in that state. The amount refunded
will not be based on average support, but on one-half the average
support for the top five percent of the highest cost funded locations
nationwide.
31. The Commission notes that, consistent with the approach it
adopted for the price cap carriers, compliance with the deployment
obligations will be determined at the state-level for recipients of
support through the competitive bidding process. Thus, the Commission
will not be looking at whether 95 percent of the eligible locations in
a census block have service, nor will it be looking at whether 95
percent of the eligible locations in a given project within a state
have service. Regardless of how a bidder chooses to place its bids for
support, for administrative convenience, support will authorized on a
state-level basis, and the geographic areas in a state that are funded
will represent the service territory for the ETC that is awarded
support through the competitive bidding process.
32. The Commission is not persuaded by commenters who argued it
should provide more flexibility than it provided price cap carriers
accepting model-based support. Unlike the price cap carriers who are
required to accept or decline the offer of model-based support at the
state level, bidders in the Phase II competitive bidding process will
be able to bid on smaller projects. Potential bidders are responsible
for undertaking the necessary due diligence in advance of bidding to
identify particularly problematic census blocks when they are preparing
their bids and have the option of not including such blocks in their
bids. Therefore, the Commission see no reason to provide greater
leniency in deployment obligations for recipients of support through
the competitive bidding process.
33. Finally, the Commission remains open to the possibility of
allowing Phase II recipients to substitute some number of unserved
locations within partially served census blocks for locations within
funded census blocks. In the December 2014 Connect America Order, 80 FR
4446, January 27, 2015, the Commission noted that all parties
potentially interested in receiving Phase II support have an interest
in building economically efficient networks, and those networks do not
neatly align with census blocks. The Commission will continue to
explore this issue, and encourage all stakeholders interested in
receiving Phase II support to work together to propose for future
Commission consideration an administratively feasible method for
ensuring that unserved consumers in partially served census blocks are
not left behind.
D. Accelerated Payment for Early Deployment
34. Discussion. After further considering the issue, the Commission
declines to adopt an accelerated payment option for recipients of Phase
II support awarded through the competitive bidding process. While a few
commenters supported providing an option for accelerated payment, and
the Commission agrees with the goal of encouraging faster deployment,
it is not persuaded that it could implement this proposal within the
annual available budget. The Commission is not convinced by ADTRAN's
claim that the universal service fund should be no worse off, because
the outlays will not increase, and could decrease slightly to the
extent the Commission discounts the accelerated future payments to
reflect the time value of money. Even if annual support amounts were
discounted, ADTRAN fails to recognize the impact on the fund if a
significant number of support recipients took advantage of an
accelerated payment option in the same year. Although overall outlays
over the 10-year term would not increase, if the Commission disburses
an amount of Connect America funding that significantly exceeds its
annual budget, it likely would have to increase the contribution factor
and the burden on all ratepayers. In adopting the high-cost budget in
the USF/ICC Transformation Order, 76 FR 73830, November 29, 2011, the
Commission explicitly sought to avoid ``dramatic swings in the
contribution factor.'' The Commission finds that the potential risk of
considerably exceeding its budget in a single year outweighs the
benefits of encouraging early deployment with an accelerated payment
option. Moreover, continuing monthly payments over the full 10-year
term provides the Commission with a means of addressing non-compliance
by withholding payments until non-compliance is cured, as discussed
below. The Commission notes that recipients will have other incentives
to complete their deployment as quickly as possible, both to begin
earning revenues from the new service offerings and to be in a position
where they are no longer required to maintain a letter of credit, as
discussed more fully below.
III. Eligible Areas
35. In this section, the Commission finalizes decisions regarding
the areas that will be subject to bidding in the Phase II auction. As a
general matter, only census blocks lacking 10/1 Mbps service from any
provider will be eligible for bidding, with two limited exceptions. The
Commission directs the Bureau to release a preliminary list of eligible
census blocks based on the most recent FCC Form 477 data and to conduct
a streamlined challenge process to identify the final list of eligible
census blocks for the Phase II competitive bidding process. The
Commission also directs the Bureau to average costs at the census block
level when generating the list of census blocks eligible for the Phase
II competitive bidding process.
36. One of the Commission's objectives is to ensure that as many
consumers as possible lacking 4/1 Mbps Internet access service become
served through implementation of Phase II. The Commission concludes it
would not be an efficient use of the Phase II support to make eligible
in the auction high-cost or extremely high-cost census blocks in the
declined states where the price cap carrier already is providing 10/1
Mbps or better service.
A. Updating Census Block Eligibility To Reflect More Recent Broadband
and Voice Coverage Data
37. Discussion. The coverage data used in the Phase II cost model
for the offer of support to the price cap carriers reflects broadband
coverage as it existed in June 2013, which now is nearly three years
old. It would not be appropriate to place in the auction those areas
that have become served through market forces in the intervening years.
The Commission therefore concludes that the Commission will rely on
current Form 477 voice and broadband deployment data to prepare a
preliminary list of census blocks that will be eligible for the Phase
II competitive bidding process. Certified Form 477 data that indicate
an area is or is not served will supersede the conclusions reached in
the Phase II
[[Page 44419]]
challenge process that the Bureau conducted for the offer of model-
based support.
38. The Commission concludes that it will conduct a limited
challenge process to ensure that support is not provided to overbuild
areas where another provider already is providing voice and broadband
service meeting the Commission's requirements. The Commission directs
the Bureau to release a preliminary list of eligible census blocks
based on June 2015 Form 477 data and to invite parties to comment
within 21 days of publication if those areas have become served
subsequent to the June 2015 Form 477 data collection with 10/1 Mbps or
greater service, with a minimum usage allowance of 150 GBs at a rate
meeting the Commission's reasonable comparability benchmark, with
latency not exceeding 100 ms.
39. The Bureau is not required to entertain challenges from parties
seeking to establish that a block reported as served on a certified FCC
Form 477 as of June 2015 or later is unserved. The Phase II challenge
process was very time-consuming and administratively burdensome for all
involved. The Commission found that it was difficult for the incumbent
provider to prove a negative--that a competitor is not serving an area,
and it expects that incumbents would face similar problems with
challenging Form 477 data that indicate that a competitor serves an
area. The Commission also observes that no party was able to
demonstrate high latency by competitors in the Phase II challenge
process, and very few providers prevailed in a challenge exclusively
focused on a competitor's usage/price.
40. The Commission has taken several steps that make the deployment
data it collects through Form 477 data more reliable than the June 2013
SBI data that was utilized in version 4.3 of the CAM for purposes of
the offer of Phase II support to price cap carriers. Unlike SBI data,
the submission of Form 477 data is mandatory for filers, and filers
must certify that the data are accurate, thereby promoting the
submission of complete and accurate data. Thus, entities should be
making timely, accurate, and complete Form 477 filings as required by
the Commission's rules; to the extent providers fail to indicate they
serve a particular census block in FCC Form 477, there is no basis for
protest if the Commission then determines such an area is unserved for
purposes of the Phase II auction. Moreover, whereas SBI data were
collected using varied methodologies by the states, Form 477 data are
collected through a single, uniform process, which reduces the
potential for inconsistent data from one state to the next. And while
the SBI data were collected in pre-defined speed tiers, Form 477 filers
offering fixed broadband service are required to report their
advertised maximum speed for each technology they offer in each census
block and distinguish between residential and nonresidential broadband,
thereby allowing the Commission to more precisely determine which
speeds are available in each census block. Finally, the use of Form 477
data ensures consistency in the data used to determine the existence of
voice and broadband in a given census block.
41. Given the improvements in the data collection, the Commission
concludes that it would not serve the public interest to entertain
challenges from parties seeking to contest the reported status of a
block as served for purpose of the Phase II competitive bidding
process. Conducting a more resource-intensive challenge process would
likely delay the implementation of the Phase II competitive bidding
process. The Commission notes that it held the Phase II challenge
process in 2014, and a number of parties took advantage of that
opportunity to correct the SBI data. The Commission concludes in this
instance it will be sufficient to rely on the certified FCC Form 477
filings and solicit comment on updated coverage through a streamlined
challenge process.
42. While the Commission concludes that eligibility of areas for
support in the Phase II competitive bidding process will be determined
at the census block level, this does not mean that the census block
will be the minimum geographic unit for purposes of bidding in the
Phase II auction. As discussed below in its discussion of auction
design, the Commission expects the minimum biddable unit to be a census
block group containing one or more eligible census blocks.
B. Averaging Costs at the Census Block Level
43. Discussion. The Commission now concludes that the CAM should no
longer calculate costs at the sub-block level, except in very limited
circumstances. This will simplify the administration and oversight of
compliance with Phase II obligations for parties awarded support
through the competitive process. The Commission therefore directs the
Bureau to average costs at the census block level when generating the
list of census blocks eligible for the Phase II competitive bidding
process, except in the circumstance it describes below.
44. For purposes of ongoing monitoring and oversight by the
Commission, the relevant state commission, and the Tribal government,
where applicable, it now concludes that it is preferable to require a
winning bidder to serve all of the locations in a given census block,
rather than some subset of those locations in a given block that are
served by a given node to the extent possible. As a practical matter,
bidders (and ultimate awardees of funding) may not know which locations
in a given block are ``funded'' and therefore must be served, and which
are not ``funded'' and do not have to be served. Accordingly, to
simplify this issue for all parties concerned, the Commission directs
the Bureau to determine which census blocks are eligible by averaging
costs at the census block level, to the extent possible, so that if a
given census block is eligible for funding, the deployment obligation
applies to all the locations in that census block.
45. For similar reasons, the Commission will not include in the
Phase II auction those census blocks that are served by multiple price
cap carriers and where at least one price cap carrier has accepted
Phase II model-based support. It would be difficult for bidders to
formulate a bid for a partial census block, as they would need to
distinguish between locations that will be served by a price cap
carrier that accepted Phase II model-based support and thus would be
ineligible for Phase II auction support, and which locations will be
served by price cap carriers that declined the support and thus would
be eligible for Phase II auction support. Accordingly, for
administrative simplicity, the Commission directs the Bureau not to
include such census blocks in the list of census blocks that are
eligible for the Phase II auction.
46. The Commission also takes this opportunity to clarify that
extremely high-cost locations that are located in census blocks where
the price cap carrier has accepted Phase II model-based support will
not be eligible for Phase II auction support. In concluding that
extremely high-cost areas would be eligible for bidding the Phase II
auction, the Commission did not intend to make eligible extremely high-
cost locations that are located within census blocks that are already
receiving Phase II support. Rather, it intended to include in the
auction those extremely high-cost census blocks that were not eligible
for the Phase II offer of model-based support.
[[Page 44420]]
47. As discussed above, the Commission has encouraged stakeholders
to propose an administratively feasible method for ensuring that
unserved consumers in partially served census blocks are not left
behind. The Commission is open to addressing these relatively few cases
after it determines which areas remain unserved after the Phase II
auction, and who the neighboring providers are.
C. Eligibility of Census Blocks Served by Price Cap Carriers Offering
Broadband at 10/1 Mbps Speeds or Higher
48. Discussion. The Commission excludes census blocks that a price
cap carrier already serves with speeds of at least 10/1 Mbps from the
Phase II competitive bidding process. Given the Commission's finite
budget and its objective of targeting support to areas that are
unserved, the Commission finds that it furthers the public interest to
exclude census blocks that are already served by price cap carriers at
speeds that meet the Commission's current requirements. The Commission
acknowledges that permitting competitive bidders to include such census
blocks in their bids could encourage more providers to participate in
the Phase II auction. But the Commission concludes on balance that to
allow such entities to overbuild census blocks already served with
broadband speeds of 10/1 Mbps would be an inefficient use of its finite
budget. While the Commission recognizes that all locations in a census
block may not be served by the price cap carrier with broadband at
speeds of 10/1 Mbps, it prefers at this time to focus its finite budget
on areas that lack any broadband provider that offers broadband at
speeds that meet the Commission's requirements.
49. The Commission declines to permit price cap carriers in the
declined territories to identify areas where they do not need support
to be excluded from the Phase II competitive bidding process. Such a
process likely would delay the implementation of the Phase II
competitive bidding process and would unfairly place a decision of
whether an area goes to auction in the hands of the carrier that
declined the offer of model-based support. The Commission concludes
that the public interest is better served by distributing Phase II
auction support as soon as possible so that unserved communities are
able to receive broadband as quickly as possible.
D. Finalizing the List of Eligible Census Blocks
50. Consistent with the foregoing decisions, and prior Commission
decisions, the Commission directs the Bureau to take all necessary
steps to determine the census blocks that will be eligible for the
Phase II auction. In particular, the Bureau shall determine which
census blocks are served by unsubsidized competitors according to
certified Form 477 data and thus ineligible for the Phase II
competitive bidding process. The Bureau also shall add to the list any
census blocks to which price cap carriers accepting model-based support
indicated by December 31, 2015 that they do not intend to deploy, and
the census blocks included in non-winning rural broadband experiment
bids submitted in category one by entities that met the Commission's
financial and technical documentation submission requirements, to the
extent FCC Form 477 data indicate that such blocks are unserved with
10/1 Mbps broadband. To ensure that potential bidders are aware of the
potential areas in the auction, the Commission directs the Bureau to
publish expeditiously a preliminary list of eligible census blocks
using the June 2015 Form 477 data. The Commission invites parties to
notify the Bureau within 21 days of publication of this preliminary
list if any of the census blocks on the preliminary list became served
after June 30, 2015. The Commission delegates to the Bureau the task of
conducting this streamlined challenge process.
51. The Bureau may subsequently update that list to the extent any
corrections are made to the June 2015 Form 477 data or to reflect more
recent Form 477 data, if publicly available. To the extent rate-of-
return carriers identify census blocks that they will be unable to
serve before the list is finalized, they also will be included. The
Bureau shall publish a final list of eligible census blocks based on
publicly available Form 477 data no later than three months prior to
the deadline for submission of short-form applications for the Phase II
auction.
IV. Budget
52. Discussion. Now that the price cap carriers have responded to
the offer of support, the Commission can establish the budget for the
Phase II auction. Nearly $175 million in support was declined. To that
figure, the Commission will add the nearly $35 million in support that
was removed from the offer as described above. The Commission also adds
the nearly $3 million associated with the served Missouri census blocks
that was subtracted from the Phase II model-based support amount that
CenturyLink accepted in Missouri. For simplicity, the Commission
therefore now sets the Phase II auction budget at $215 million in
annual support (rounding up the sum of nearly $175 million, nearly $35
million, and nearly $3 million).
V. Phase II Auction
A. Basic Guidance on Auction Process
53. Discussion. Here the Commission provides some basic guidance on
choosing an auction design that will further its objectives for Connect
America Phase II competitive bidding.
54. The Commission has already adopted competitive bidding rules
that allow for the subsequent determination of specific final auction
procedures based on additional public input during the pre-auction
process. Those competitive bidding rules together with the additional
rules the Commission adopts today to establish Phase II winning
bidders' performance obligations, eligible areas, and post-auction
obligations and oversight establish the framework needed for the
Commission to develop detailed auction procedures in the pre-auction
process, including specific procedures for ranking bids based on
bidders' performance requirement commitments, auction format, package
bidding to enable bidders to aggregate eligible areas, and reserve
prices. The Commission's decisions today are intended to narrow the
scope of issues so that interested parties can focus constructively on
the remaining details, while preserving its ability to make adjustments
if circumstances or the record developed in the pre-auction process
support such changes to assure that the auction will take place in a
timely manner and fulfill the goals it establishes in this Order.
55. Ranking bids. The Commission now adopts an auction design in
which bidders committing to different performance levels will compete
head to head in the auction, with weights to take into account its
preference for higher speeds over lower speeds, higher usage over lower
usage allowances, and low latency over high latency. A number of
commenters support a framework that provides an absolute preference to
bidders deploying future proof networks, while other commenters
disagree. After consideration of the record, the Commission is not
persuaded that one type of bid should be processed separately from
another type, or that one type of bid should
[[Page 44421]]
automatically be selected over another, regardless of the bid amount.
Rather, all bids will be considered simultaneously, so that bidders
that propose to meet one set of performance standards will be directly
competing against bidders that propose to meet other performance
standards. The Commission concludes that the bids for entities
committing to meet significantly higher speeds and/or usage than the
baseline should be adjusted because it sees the value to consumers in
rural markets of having access to service during the 10-year term of
support that significantly exceeds the Commission's baseline
requirements. Likewise, the Commission sees value to rural consumers of
having access to speeds and usage that meet its baseline requirements,
rather than the minimum. The Commission would prefer, to the extent
possible, to ensure that consumers living in high-cost areas receive
the level of universal service that it establishes as its baseline
expectation. The Commission also would prefer consumers having access
to low latency services over high latency services. The Commission also
notes that when structuring the Phase II auction, it will keep in mind
the Commission's objective of bringing service to as many consumers
lacking 4/1 Mbps Internet access service as possible through the
implementation of Phase II. The Commission seeks comment on the
assignment and specific level of the weights in the concurrently
adopted Further Notice.
56. Bids will be scored relative to the reserve price for the areas
subject to the bid with lower bids selected first, taking into accounts
the weights, on which the Commission seeks comment in the concurrently
adopted Further Notice. The Commission concludes that this approach is
more likely to ensure winning bidders across a wide range of states
than selecting bids based on the dollar per location, which could
result in support disproportionately flowing to those states where the
cost to serve per location is, relatively speaking, lower than other
states. The Commission declines to adopt an approach that would select
bids on a dollar per location basis.
57. Appropriate Phase II Funding Across States. The Commission
recognizes the concerns that have been raised by states about the need
for an efficient and equitable allocation of Phase II funds,
particularly for those states in which a substantial amount of the
offer of Phase II support was declined. That an incumbent carriers
declined the offer of support does not diminish its universal service
obligation to connect consumers in areas that would have been reached
had the offer been accepted and to provide sufficient universal service
funds to do so. Accordingly, one of the Commission's objectives is to
address these concerns. The Commission seeks comment on how best to
design the Phase II auction in the concurrently adopted Further Notice.
In addition, the Commission recognizes and applauds state-based
initiatives to advance broadband deployment. In the concurrently
adopted Further Notice, the Commission also seeks comment on how best
to coordinate with such initiatives to achieve its universal service
goals.
58. Tribal lands. The Commission recognizes its historic
relationship with federally recognized Tribal Nations, has a
longstanding policy of promoting Tribal self-sufficiency and economic
development, and has developed a record of helping ensure that Tribal
Nations and their members obtain access to communications services.
Telecommunications deployment on Tribal lands has historically been
poor due to the distinct challenges in bringing connectivity to these
areas. The Commission has observed that communities on Tribal lands
have historically had less access to telecommunications services than
any other segment of the population, and that greater financial support
therefore may be needed in order to ensure the availability of
broadband on Tribal lands. Accordingly, the Commission seeks to adopt
mechanisms to advance broadband deployment on Tribal lands. The
Commission seeks comment in the concurrently adopted Further Notice on
measures that it could take in the Phase II auction to further that
objective.
59. Auction format for collecting bids. The record is mixed on
whether to conduct a single or multi-round bid auction. USTelecom,
WISPA, and UTC propose a multiple-round format, while ACA urges a
single-round sealed bid auction. The Commission prefers a multi-round
auction format for the Phase II auction, but it has not settled on the
specific details of such an auction format. The Commission notes that
when adopting the rules for the Mobility Fund Phase I and Tribal
Mobility Fund Phase I auctions in the USF/ICC Transformation Order, the
Commission observed that the question of whether to conduct multiple
rounds of bidding is typically resolved in the auction procedures
process. Similarly, here, the specific auction design details will be
adopted in a future Auction Procedures Public Notice, after the
opportunity for further comment. Based on the information currently
available to the Commission, the Commission expects that a multiple-
round bid auction would enable bidders, better than a single-round bid
auction, to make adjustments in their bidding strategies to facilitate
a viable aggregation of geographic areas in which to construct networks
and enable competition to drive down support amounts.
60. Minimum geographic area for bidding. The Commission expects
that the minimum geographic area for bidding will be a census block
group containing one or more eligible census blocks, although it
reserves the right to select census tracts when it finalizes the
auction design if necessary to limit the number of discrete biddable
units. The Commission concludes that defining bidding units based on
census-determined areas is preferable to an approach that is grounded
in the network topology of a particular type of service provider. The
Commission concludes generally that it is desirable to ensure that all
interested bidders, including small entities, have flexibility to
design a network that matches their business model and the technologies
they intend to use. The Commission is not persuaded that adopting a
larger geographic unit, such as a county, would be the appropriate
minimum unit for purposes of bidding. Such an approach could preclude
entities that intend to construct a smaller network or that intend to
bid to expand their existing networks. The Commission also expects that
as the size of the minimum geographic unit increases, the more
challenges providers may face in putting together a bidding strategy
that aligns with their intended network construction or expansion.
61. Reserve prices. The Commission will use the CAM to set reserve
prices for the Phase II auction. The reserve price for a minimum
biddable unit will be no greater than the CAM-calculated support amount
for that area, with a cap in the amount of support per location
provided to extremely high cost census blocks. The record supports the
Commission's proposal to utilize the CAM to establish reserve prices,
although some commenters suggest that the reserve price should be
higher. For example, ITTA argues that the reserve price should be set
based on a model-derived amount plus an additional percentage because
the cost of deploying is likely to be more where the price cap carrier
did not elect the statewide commitment. The Commission's experience
with the rural broadband experiments, however, indicates that there are
providers willing to deploy broadband for support amounts less than the
model-based
[[Page 44422]]
amount. As with the auction design, the specific reserve prices will be
adopted in a future Auction Procedures Public Notice, after the
opportunity for further comment.
B. Application Process
62. Discussion. Consistent with the Commission's approach in
Mobility Fund Phase I and Tribal Mobility Fund Phase I, the Commission
adopts a two-stage application filing process for participants in the
Phase II competitive bidding process. Specifically, in the pre-auction
``short-form'' application, a potential bidder will need to establish
its eligibility to participate, providing, among other things, basic
ownership information and certifying to its qualifications to receive
support. After the auction, the Commission would conduct a more
extensive review of the winning bidders' qualifications to receive
support through ``long-form'' applications. Such an approach balances
the need to collect essential information with administrative
efficiency, and will provide the Commission with assurance that
interested entities are qualified to meet the terms and conditions of
the Phase II competitive bidding process if awarded support. The
Commission notes that each potential bidder has the sole responsibility
to perform its due diligence research and analysis before proceeding to
participate in the Phase II auction.
63. Once the long-form application has been approved, a public
notice will be released announcing that the winning bidder is ready to
be authorized. At that time, the winning bidder will be required to
submit, within a specified number of days, at least one letter of
credit and an opinion letter from counsel that meets the Commission's
requirements as described below. After those documents are approved, a
public notice will be released authorizing the winning bidder to begin
receiving Phase II auction support.
64. Below, the Commission discusses the requirements it adopts for
the short-form and the long-form applications for the Phase II
competitive bidding process. Consistent with the approach the
Commission took for the rural broadband experiments last year, it
directs the Wireline Competition Bureau and the Wireless
Telecommunications Bureau (Bureaus) to adopt the format and deadlines
for the submission of documentation for the short-form and long-form
applications, that are consistent with the Commission's universal
service competitive bidding rules and Part 54 of the Commission's
rules.
1. Short-Form Application Process
65. Discussion. The Commission requires all applicants for the
Phase II competitive bidding process to provide basic information in
their short-form applications that will enable the Commission to review
each application to assess before an entity commits time and resources
to participating in the auction whether the applicant is eligible to
participate in the auction. In addition to making the financial and
technical certification adopted in the April 2014 Connect America
Order, 79 FR 39164, July 9, 2014, the Commission's universal service
competitive bidding rules will apply so that applicants will be
required to provide information that will establish their identity,
including disclosing parties with ownership interests and any
agreements the applicant may have relating to the support to be sought
through the Phase II competitive bidding process.
66. The Commission will also require all applicants to indicate the
type of bids that they plan to make and describe the technology or
technologies that will be used to provide service for each bid.
Applicants will also be required to submit with their short-form
applications any information or documentation required to establish
their eligibility for any bidding weights or preferences that the
Commission ultimately adopts. To the extent that an applicant plans to
use spectrum to offer its voice and broadband services, it must
disclose whether it currently holds licenses for or leases spectrum.
The applicant must demonstrate it has the proper authorizations, if
applicable, and access to operate on the spectrum it intends to use,
and that the spectrum resources will be sufficient to cover peak
network usage and meet the minimum performance requirements to serve
all of the fixed locations in eligible areas. Moreover, all applicants
will be required to certify that they will retain their access to the
spectrum for at least 10 years from the date of the funding
authorization.
67. The Commission does not expect that these requirements will
impose an unreasonable burden on potential bidders. The Commission had
similar requirements for bidders in the rural broadband experiments,
and it is not aware of any applicants having difficulty providing such
baseline information. The Commission anticipates that as they prepare
to participate in the auction, applicants will already have firm plans
for where they will bid and the technologies they will use to provide
service to the areas for which they will bid. Unlike the applicants
participating in the Mobility Fund auctions, participants will likely
be proposing to use a wide variety of technologies to provide service
meeting the Commission's requirements. Because not all participants
will have ETC designations to provide service in their relevant service
areas, it will be useful for the Commission to have some insight into
the types of technologies that bidders intend to use to meet their
obligations prior to the auction. The project descriptions are intended
to provide the Commission with some assurance that the applicant has
thought through how it intends to provision service if awarded support.
68. To provide additional assurance to the Commission that the
entities that intend to bid in the auction have some experience
operating networks or are otherwise financially qualified, it adopts
several alternative prequalification requirements. First, the
Commission adopts a requirement that applicants certify in their short-
form application that they have provided voice, broadband, and/or
electric distribution or transmission services for at least two years
and specify the number of years they have been operating, or they are
the wholly-owned subsidiary of an entity that meets these requirements.
Applicants that have provided voice or broadband services must also
certify that they have filed FCC Form 477s as required during that time
period. Recognizing the electric utilities also have significant
experience building and operating networks, the Commission also will
accept certifications from entities that have provided electric
distribution or transmission services for at least two years (or their
wholly-owned subsidiaries). Applicants that have operated only an
electric distribution or transmission network must submit qualified
operating or financial reports for the relevant time period that they
have filed with the relevant financial institution along with a
certification that the submission is a true and accurate copy of the
forms that were submitted to the relevant financial institution. The
Commission will accept the Rural Utilities Service (RUS) Form 7,
Financial and Operating Report Electric Distribution; the RUS Form 12,
Financial and Operating Report Electric Power Supply; the National
Rural Utilities Cooperative Finance Corporation (CFC) Form 7, Financial
and Statistical Report; the CFC Form 12, Operating Report; or the
CoBank Form 7; or the functional replacement of one
[[Page 44423]]
of these reports. The Commission concludes that if an entity can
certify that it has provided voice, broadband, and/or electric
distribution or transmission services for at least two years or that it
is a wholly-owned subsidiary of such an entity, that will provide the
Commission with sufficient assurance before the auction that an entity
has at a minimum level demonstrated that it has the ability to build
and maintain a network.
69. Entities that meet the foregoing requirements will also submit
audited financial statements from the prior fiscal year, including
balance sheets, net income and cash flow, that have been audited by an
independent certified public accountant with their short-form
application. The Commission is not persuaded that it should permit
applicants to submit reviewed financial statements in lieu of audited
financial statements. While the Commission acknowledges that it
collects in the section 54.313 annual report reviewed financial
statements from privately held rate-of-return ETCs that are not RUS
borrowers and are not audited in the normal course of business, the
Commission concludes that the better approach for the Phase II auction
is to require a financial audit. A financial review is a less fulsome
review of an entity's financial health because it does not generally
require the auditor to develop a detailed understanding of the internal
controls environment and conduct more in-depth testing of individual
transactions posted to the general ledger. The need to ensure that
every Phase II auction recipient is in good financial health is
critical. Authorized Phase II recipients will be required to take on
obligations with defined timelines, so it is important that the
Commission has insight into an entity's financial health to assess its
ability to meet such obligations if awarded support. The Commission
concludes that the additional cost of obtaining audited financial
statements is outweighed by the importance of assuring the financial
health of Phase II auction recipients.
70. However, the Commission concludes that to the extent an entity
that otherwise meets these eligibility requirements does not already
obtain an audit of its financial statements in the ordinary course of
business, the Commission will permit that entity to wait until after it
is announced as a winning bidder to submit audited financial
statements. The Commission will require such entities that do not
already have audited financial statements to certify that they will
submit the prior fiscal year's audited financial statements by the
deadline during the long-form application process. The Commission
acknowledges that some potential bidders, particularly small entities,
may be reluctant to bid in the Phase II auction because they do not
want to pay the upfront costs of obtaining audited financial statements
prior to finding out if they are winning bidders. Because such entities
will be required to demonstrate that they have provided a voice,
broadband, or electric distribution or transmission service for two
years, the Commission concludes that this will give it reasonable
assurance of an entity's financial health for permitting that entity to
participate in the auction. The Commission concludes that on balance,
its interest in maximizing participation in the Phase II auction
outweighs the potential risk of qualifying an experienced entity to
participate in the Phase II auction without reviewing that bidder's
audited financial statements, particularly given that it will have the
opportunity to scrutinize the bidder's audited financial statements at
the long-form application stage before authorizing that entity to begin
receiving support.
71. The Commission requires winning bidders that take advantage of
this option to submit their audited financials no later than the
deadline for submitting their proof of ETC designation (which is within
180 days of public notice announcing winning bidders). The Commission
concludes that requiring winning bidders to submit their audited
financials within the same timeframe as the ETC designations will help
prevent unreasonable delays in authorizing Phase II auction support so
that winning bidders can begin deploying broadband to unserved
consumers. The Commission expects that bidders will take steps to
prepare for an audit once they have submitted their short-form
application so that they can immediately start the process upon being
named a winning bidder. If the audit process takes longer than 180
days, winning bidders will have the option of seeking a waiver of this
deadline. In considering such waiver requests, the Commission directs
the Bureau to determine whether an entity demonstrated in its waiver
petition that it took steps to prepare for an audit prior to being
named a winning bidder and that it took immediate steps to obtain an
audit after being announced as a winning bidder.
72. The Commission concludes that it is appropriate to adopt a base
forfeiture of $50,000 for any entity that certifies in its short-form
application that it will submit audited financials in its long-form
application, but then ultimately defaults by failing to submit audited
financial statements as required. Such forfeiture would also be subject
to adjustment upward or downward as appropriate based on the criteria
set forth in the Commission's forfeiture guidelines. The Commission
finds that imposing such a forfeiture will create an incentive for
bidders to certify truthfully in their short-form applications that
they will obtain audited financial statements if announced as a winning
bidder and will also create an incentive for winning bidders to
actually go out and obtain those audited financial statements rather
than default.
73. The Commission is not persuaded that it should adopt the
alternative proposals suggested by ACA and WISPA including (1)
requiring entities that are not audited in the ordinary course of
business to make an upfront payment or deposit of $25,000 or (2)
imposing a maximum forfeiture of $25,000 if an entity does not submit
its audited financial statements as required. First, the Commission
concludes that managing and tracking escrow arrangements would be too
administratively burdensome and could potentially delay the auction.
Second, the Commission finds that imposing a $25,000 upfront payment or
maximum forfeiture would permit an entity to conduct a cost-benefit
analysis that could encourage gaming. For example, an entity may decide
it would be willing to pay $25,000 if it could preclude others from
being winning bidders in certain areas and then default, or an entity
may decide it is willing to pay $25,000 to default if it is ultimately
unhappy with its winning bid. Instead, the Commission concludes that
adopting a $50,000 base forfeiture rather than a maximum forfeiture
will make it more difficult for an entity to perform such a strict
cost-benefit analysis because the forfeiture may be increased if it is
determined that such gaming has taken place. According to some
commenters, the costs of a financial statement audit can vary and
generally start at $25,000. The Commission finds that adopting a base
forfeiture of $50,000 rather than $25,000 will further reduce the
incentives for gaming. The Commission also concludes a base forfeiture
of $50,000 is large enough to create an incentive for bidders take
their obligation to get audited financial statements seriously given
that it will be relying upon the winning bidders' certifications in the
short-form application in permitting those bidders to participate in
the Phase II auction.
74. Recognizing that the foregoing requirements would preclude from
participating in the Phase II auction
[[Page 44424]]
entities that have less than two years of experience operating a voice,
broadband and/or electric distribution or transmission network, the
Commission adopts an alternative pathway for those entities to be
deemed qualified to bid in the auction. If an interested bidder cannot
make the above certification that it has filed FCC Form 477 data as a
voice or broadband provider for the previous two years or the
identified alternative operating or financial forms for electric
distribution or transmission providers, it may instead submit (1)
audited financial statements for that entity from the three most recent
consecutive fiscal years, including balance sheets, net income, and
cash flow, and (2) a letter of interest from a qualified bank with
terms acceptable to the Commission that the bank would provide a letter
of credit to the bidder if the bidder were selected for bids of a
certain dollar magnitude.
75. For the latter group of potential bidders, the Commission
concludes that its interest in having a level of insight into the
financial health of a potential Phase II auction bidder over a longer
period of time is a necessary prequalification to bid, particularly
because this subset of bidders will not able to demonstrate that they
have operated and maintained a voice, broadband and/or electric
distribution or transmission network for at least two years.
76. The Commission also expects that a letter of interest from the
bank will provide the Commission with an independent basis for some
additional assurance regarding the financial status of the entity. The
Commission does not anticipate that this requirement will be onerous.
The Commission expects that interested bidders will already be
considering which banks they will use to meet the letter of credit
requirement described below, and that they will have to find a bank
that will be willing to issue them a letter of credit in order to
ultimately be authorized to begin receiving support. But the Commission
cautions potential bidders that it will carefully scrutinize such
letters and reserve the right not to allow such applicants to bid if
the letter of interest is too vague to assess the likelihood of a
future bank commitment.
77. The Commission recognizes that by adopting these requirements,
it is potentially precluding interested bidders that have not been in
operation long enough to meet these requirements or that are unable to
meet these requirements for other reasons. By adopting alternative
types of pre-qualification requirements, the Commission will implement
a more narrowly tailored approach that balances maximizing
participation in the auction with furthering the statutory principles
of providing access to advanced services to all regions in the county
and ensuring that those living in rural, insular and high-cost areas
have access to reasonably comparable services. As stewards of the
public's funding, it is the Commission's responsibility to implement
safeguards to ensure that these funds are being used efficiently and
effectively, and to protect consumers in rural and high-cost areas
against being stranded without a service provider in the event a
winning bidder defaults when another qualified competing bidder could
have won the support instead.
78. Finally, the Commission will also require interested bidders to
identify in their short-form applications if they have already been
designated as ETCs in the areas they intend to bid. Consistent with the
Commission's decision to permit bidders to wait until they have been
announced as winning bidders to obtain their ETC designation,
interested bidders will also be required to certify in their short-form
applications that they acknowledge they must be designated as an ETC
for the areas in which they will receive Phase II support before they
are authorized to begin receiving such support.
2. Post-Auction Long-Form Application Process
79. Discussion. Building on lessons learned from Mobility Fund
Phase I, Tribal Mobility Fund Phase I, and the rural broadband
experiments, the Commission now adopts a number of requirements for the
long-form and post-auction review process that will apply generally to
recipients of Phase II and Remote Areas Fund support.
a. Financial and Technical Requirements
80. Like the Mobility Fund Phase I and Tribal Mobility Fund Phase I
auctions, the Commission will require that winning bidders submit a
self-certification regarding their financial and technical
qualifications with their long-form applications. They must also submit
a certification that specifies that they will be able to meet all of
the applicable public interest obligations for the relevant tiers,
including the requirement that they offer service at rates that are
equal or lower to the Commission's reasonable comparability benchmarks
for fixed wireline services offered in urban areas. Due to the varying
types of technologies that entities may use to fulfill their Phase II
competitive bidding process obligations, the Commission finds that it
is also reasonable to require winning bidders to submit a description
of the technology and system design they intend to use to deliver voice
and broadband service, including a network diagram which must be
certified by a professional engineer. The professional engineer must
certify that the network is capable of delivering, to at least 95
percent of the required number of locations in each relevant state,
voice and broadband service that meets the requisite performance
requirements. There must be sufficient capacity to meet customer demand
at or above the prescribed levels during peak usage periods. Entities
proposing to use wireless technologies also must provide a description
of their spectrum access in the areas for which they seek support and
demonstrate that they have the required licenses to use that spectrum
if applicable. This documentation will enable Commission staff to have
assurance from a licensed engineer that the proposed network will be
able to fulfill the service obligations to which the bidders will have
to commit. The Commission reminds potential applicants that filing
deadlines will be strictly enforced, and that bidders should not
presume that they may obtain a waiver absent extraordinary
circumstances.
81. The Commission notes that it required provisionally selected
bidders in the rural broadband experiments to submit similar technical
documentation, and the vast majority of provisionally selected bidders
in the rural broadband experiments were able to meet these
requirements. Similarly, the Commission is aware that RUS requires loan
applicants to submit detailed network information as part of its
application process. The Commission expects that potential bidders for
the Phase II competitive bidding process will need to have already
developed a network plan when making a decision about whether to
participate in the auction. Accordingly, on balance the Commission
concludes that its interest in assessing, before an entity is
authorized to receive support, whether that entity is likely able to
fulfill Phase II obligations outweighs any potential burdens this
requirement may impose on bidders.
82. Similar to the requirements for Mobility Fund Phase I and
Tribal Mobility Fund Phase I, the Commission will require that winning
bidders certify that they have available funds for all project costs
that will exceed the amount of support that will be received from the
Phase II auction authorization for the first two years of their support
[[Page 44425]]
term and that they will comply with program requirements, including
service milestones. The Commission anticipates that many bidders will
need to obtain a loan or rely upon other sources of funding to cover
the cost of building the network, with the ongoing support used to
repay those construction loans. It therefore is imperative that winning
bidders have a well-developed plan regarding financing for construction
upon which they are ready to execute once the auction closes. Unlike
Mobility Fund Phase I, where one time support was disbursed in
conjunction with meeting deployment milestones, Phase II support will
be provided over a 10-year period. Therefore, the Commission will also
require that winning bidders describe in their long-form application
how the required construction will be funded and include financial
projections that demonstrate that they can cover the necessary debt
service payments over the life of the loan. The Commission also expects
that prior to issuing a letter of credit, an issuing bank will be
performing its own financial review of the winning bidder, which will
provide an added assurance that it is financially qualified. And, as
noted above, prior to funding authorization, winning bidders that are
not required to submit audited financial statements in the short-form
application will be required to submit the prior fiscal year's
financial statements that have been audited by an independent certified
public accountant.
83. Finally, as discussed more fully below, in the Phase II
competitive bidding process, participants will be subject to a defined
forfeiture if they fail to meet within defined time periods the
Commission's requirements to be authorized to receive support. The
Commission expects that subjecting bidders to such a forfeiture payment
if they are unable to get a letter of credit or meet the Commission's
other requirements will underscore the requirement that bidders must do
their own due diligence about their financial capability to meet their
obligations before they participate in the Phase II competitive bidding
process.
b. Letters of Credit
84. Discussion. The Commission adopts a letter of credit
requirement for all winning bidders. In the long-form application
filing, it will require each winning bidder to submit a letter from a
bank as described below committing to issue a letter of credit. The
winning bidder will be required to have its letter of credit in place
before it is authorized to receive support. The Commission's decision
to require recipients to obtain a letter of credit is consistent with
the requirements the Commission has adopted for other competitive
bidding processes it has conducted to distribute Connect America funds,
where both existing providers and new entrants were required to obtain
letters of credit. In response to what the Commission learned in the
rural broadband experiments, however, it makes some adjustments to
these requirements in an effort to reduce some of the cost associated
with obtaining a letter of credit.
85. In the USF/ICC Transformation Order and in the Rural Broadband
Experiments Order, 79 FR 45705, August 6, 2014, the Commission
explained why letters of credit are an effective means for
accomplishing its role as stewards of the public's funds by securing
the Commission's financial commitment to provide Connect America
support in the auction context. The Commission also explained why it
did not adopt other approaches suggested in the record, such as relying
on its existing accountability measures or adopting alternative methods
of securing Connect America funds, for example performance or
construction bonds, field inspections, or denials of certification. The
Commission concludes that the same rationale applies here. Letters of
credit permit the Commission to immediately reclaim support that has
been provided in the event the recipient is not furthering the
objectives of universal service by complying with the Commission's
rules or requirements. They also have the added advantage of minimizing
the possibility that the support becomes property of a recipient's
bankruptcy estate for an extended period of time, thereby preventing
the funds from being used promptly to accomplish the Commission's
goals. The Commission finds that commenters that have renewed requests
for alternatives based on their experience with the rural broadband
experiments, such as requiring a performance bond, placing money in
escrow, or submitting financial statements in lieu of a letter of
credit or considering an entity's history of receiving high-cost
support or performance, have not demonstrated that their suggested
alternatives offer the same level of protection of ratepayers'
contributions to the universal service fund.
86. Additionally, the Commission reminds bidders to become familiar
with the letter of credit requirements it adopts below and consider
potential issuing banks in a timely fashion. To the extent that a
bidder is the recipient of a loan or grant from RUS, it should consult
with RUS regarding the need to obtain a letter of credit if it is
authorized to receive support before it submits a short-form
application. The Commission notes that RUS' regulations generally
require that recipients of RUS support obtain a first lien on the
assets that are secured by certain broadband and telecommunications
loan programs. If a bank determines that it will need a first lien on
an entity's assets as collateral for issuing a letter of credit, RUS
and that bank will need to negotiate acceptable arrangements, such as
an intercreditor agreement with that bank to share RUS' first lien
status. RUS has set forth a number of standards that an intercreditor
agreement will have to meet including having the bank impose specific
obligations on the Phase II auction recipient, in order for RUS to sign
on to an intercreditor agreement. To the extent required, it is in the
best interest of entities to contact RUS and become familiar with those
standards as soon as possible. In the event that the bidder's chosen
issuing bank requires a first lien to issue a letter of credit, the
bidder should ensure that it can comply with the additional obligations
and that the issuing bank will be able to agree to those terms by the
time the bidder will be required to submit a letter of credit
commitment letter as described below.
87. Requirements for Letters of Credit. Once the Commission has
conducted its post-auction financial and technical review, it will
require winning bidders to secure an irrevocable stand-by letter of
credit before support will be authorized for disbursement. For each
state which they are awarded support, winning bidders must submit a
letter of credit or multiple letters of credit that cover all of the
bids in that state. The letter of credit must be issued in
substantially the same form as set forth in the model letter of credit
provided in Appendix B of this Order, by a bank that is acceptable to
the Commission, as described in more detail below. If an entity fails
to meet the required service milestones after it begins receiving
support, then fails to cure within the requisite time period, and is
unable to repay the support that is associated with its default in a
timely manner, the Bureau will issue a letter evidencing the failure
and declaring a default.
88. In response to concerns raised about the cost of maintaining a
letter of credit for the entire support period, the Commission will
require that the letter of credit only remain open until the recipient
has certified that it has deployed broadband and voice service meeting
the Commission's requirements to 100 percent of the required number of
locations, and USAC has validated
[[Page 44426]]
that the entity has fully deployed its network. The Commission
concludes that such an approach will help alleviate the costs of
obtaining a letter of credit, particularly for entities that are able
to build out their networks faster than the six year build-out period,
while still protecting the Commission's ability to recover the funds in
the event that the entity is not building out its network as required.
This approach is consistent with the approach used for Mobility Fund
Phase I and Tribal Mobility Fund Phase I, where an entity is required
to maintain a letter of credit valued at the support that had been
disbursed until the Commission verifies that the build-out has been
completed.
89. The Commission does not adopt the proposals that would reduce
the amount of the letter of credit to cover only the support that is
disbursed for the first two years unless an entity fails to meet the
first service milestone or that would cover only the support that is
disbursed in the coming year. Both of these approaches would not permit
the Commission to recover a significant portion of the public's funds
that are disbursed to an entity in the event that the entity is not
using the support for its intended purposes. The Commission recognizes
that some entities may continue to operate partially-built networks
even in the event of a default. However, as described below, the
Commission will only authorize USAC to draw on the letter of credit for
the entire amount of the letter of credit if the entity does not repay
the Commission for the support associated with its compliance gap. If
the entity fails to pay this support amount, the Commission concludes
that the risk that the entity will be unable to continue to serve its
customers or may go into bankruptcy is more likely, and thus it is
necessary to ensure that the Commission can recover the entire amount
of support that it has disbursed.
90. Letter of Credit Opinion Letter. Consistent with the
Commission's requirements for Mobility Fund Phase I, Tribal Mobility
Fund Phase I, and the rural broadband experiments, winning bidders must
also submit with their letter(s) of credit an opinion letter from legal
counsel. That opinion letter must clearly state, subject only to
customary assumptions, limitations, and qualifications, that in a
proceeding under the Bankruptcy Code, the bankruptcy court would not
treat the letter of credit or proceeds of the letter of credit as
property of the account party's bankruptcy estate, or the bankruptcy
estate of any other Phase II competitive bidding process recipient-
related entity requesting issuance of the letter of credit under
section 541 of the Bankruptcy Code.
91. Issuing Bank Eligibility. The letters of credit for winning
bidders must be obtained from a domestic or foreign bank meeting the
requirements adopted herein. The record suggests that entities,
especially small entities, lack established relationships with banks
that met the requirements the Commission adopted for the rural
broadband experiments, which can make it costly for such entities to
obtain a letter of credit. Moreover, some entities may intend to bid on
smaller projects, and larger banks that met the Commission's
requirements for the rural broadband experiments may be unwilling to
issue letters of credit below a certain threshold. Because these
obstacles are also faced by rural broadband experiment participants and
could potentially constrain participation in the Remote Areas Fund, the
Commission concludes that it serves the public interest to expand the
pool of banks that are eligible to issue letters of credit for all
recipients of support authorized through competitive bidding to serve
fixed locations, while maintaining objective criteria that will provide
sufficient assurance that letters of credit issued by such banks will
be honored.
92. Specifically, the Commission requires generally that, for U.S.
banks, the bank must be insured by the Federal Deposit Insurance
Corporation (FDIC) and have a Weiss bank safety rating of B- or higher.
This will expand the number of eligible U.S. banks from fewer than 70
banks to approximately 3,600 banks. Whereas banks that intend to
participate in the commercial markets obtain credit ratings, Weiss
rates all banks that report sufficient data for Weiss to analyze.
Importantly, Weiss is a subscription service and is not compensated by
the banks that it rates. Weiss offers an independent and objective
perspective of the safety of the banks it rates based on
capitalization, asset quality, profitability, liquidity, and stability
indexes. By requiring that the banks have a rating of at least B-, the
Commission ensures that the bank has a rating that at a minimum
demonstrates that the bank ``offers good financial security and has the
resources to deal with a variety of adverse economic conditions.'' And
by requiring that U.S. issuing banks also be FDIC-insured, the
Commission has the added benefit of relying on the oversight of the
FDIC and its protections. The Commission concludes that this approach
achieves an appropriate balance between encouraging the participation
in the auction, particularly of small entities, and protecting the
public funds. The Commission expands the eligibility of banks to lower
barriers to participation in the auction for entities that may not
otherwise be able to obtain a letter of credit from a smaller pool of
banks, while also ensuring that it puts in place adequate controls to
protect the Fund by adopting alternative eligibility criteria that give
the Commission independent assurance of the safety and the soundness of
the bank issuing a letter of credit.
93. In lieu of obtaining a letter of credit from a U.S. bank that
meets these requirements, the Commission will also permit entities to
obtain letters of credit from CoBank or the National Rural Utilities
Cooperative Finance Corporation (CFC) as long as these two entities
retain assets that place them among the top 100 U.S. banks, and they
maintain a credit rating of BBB- or better from Standard & Poor's (or
the equivalent from a nationally-recognized credit rating agency).
These entities are not traditional banks in that they do not accept
deposits from members of the public. Thus, these entities do not have a
Weiss bank safety rating and are not FDIC-insured. However, the
Commission finds that CFC and CoBank can be considered banks in the
context of the Commission's program because they use their capital
resources to make loans.
94. CoBank has met the more stringent issuing bank eligibility
requirements for the Mobility Fund and rural broadband experiments, and
has issued a number of letters of credit for these programs. Although
CoBank is not FDIC-insured, it is insured by the Farm Credit System
Insurance Corporation, which the Commission found provides protections
that are equivalent to those indicated by holding FDIC-insured
deposits. As long as CoBank retains its standing with assets equivalent
to a top 100 U.S. bank and a qualified credit rating, the Commission
sees no reason to exclude CoBank from eligibility simply because it is
not rated by Weiss.
95. CFC's assets also make it comparable to commercial depository
banks that are in the top 100 based on total assets and it has a credit
rating from Standard & Poor's of A. But because CFC is not a depository
institution and it is not part of the Farm Credit System, it is not
FDIC or FCSIC-insured. Nevertheless, the Commission concludes that CFC
is uniquely situated and should be made eligible to the extent it
retains its standing with assets equivalent to a top 100 U.S. bank and
a qualified credit rating. CFC is ``owned by, and exclusively serves''
rural utility providers, and CFC manages and funds
[[Page 44427]]
its affiliate, the Rural Telephone Finance Cooperative (RTFC), which
lends primarily to telecommunications providers and affiliates across
the nation. As the largest non-governmental lender for rural utilities,
CFC has specialized institutional knowledge regarding the types of
entities that the Commission expects will participate in universal
service competitive bidding to serve fixed locations and has
demonstrated that it has significant and long-term experience in
financing the deployment of rural networks. A number of entities that
participated in the rural broadband experiments and entities that have
expressed interest in participating future competitive bidding have
indicated that they have an established relationship with CFC. This
unique and longstanding role in rural network deployment coupled with
CFC's significant participation in other rural federal government
programs, its substantial assets, and its sustained credit rating,
provides the Commission with sufficient assurance that CFC has the
qualifications to assess the financial health of potential bidders and
honor the letters of credit that it issues at the request of these
bidders, without the need for the independent oversight of CFC's safety
and soundness that would be offered by FDIC or FCSIC insurance or a
Weiss safety rating. The Commission concludes that based on the
totality of these circumstances, CFC is eligible to issue letters of
credit despite the fact that it does not meet the FDIC and Weiss rating
requirements. The Commission notes that it is not adopting alternative
eligibility requirements that would permit banks that are not FDIC or
FCSIC-insured or that do not have a Weiss bank safety rating to issue
letters of credit. Instead the Commission is concluding that, for
purposes of providing security for winning bidders, a letter of credit
from CFC provides assurances that are equivalent to those provided by
banks meeting the Commission's general criteria, due to CFC's uniquely
extensive experience in financing rural networks, its significant
participation in other federal government programs, and its long-
standing relationship with a class of potential auction bidders.
96. For non-U.S. banks, the Commission retains the same eligibility
requirements that it adopted for the rural broadband experiments.
Accordingly, for non-U.S. banks, the Commission requires that the bank
be among the 100 largest non-U.S. banks in the world (determined on the
basis of total assets as of the end of the calendar year immediately
preceding the issuance of the letter of credit, determined on a U.S.
dollar equivalent basis as of such date). The bank must also have a
branch in the District of Columbia or other agreed-upon location in the
United States, have a long-term unsecured credit rating issued by a
widely-recognized credit rating agency that is equivalent to a BBB- or
better rating by Standard & Poor's, and must issue the letter of credit
payable in United States dollars.
97. The Commission is not persuaded that it should further expand
the bank eligibility requirements to include all banks that are
federally-insured. If the Commission were to permit entities to use any
bank that is federally-insured, it would need to conduct a
comprehensive review of every bank to determine whether it has adequate
safety and soundness. Because the Commission lacks the expertise to
conduct such a review and it would delay the authorization of winning
bidders, it concludes that expanding the number of eligible U.S. banks
to banks that are FDIC-insured and have a Weiss bank safety rating of
B- or higher addresses the concerns of small entities while also using
an objective and administratively feasible method to judge the
financial security of a bank. The Commission also finds that relying on
an independent evaluation of the safety and soundness of a bank that
uses a rating based on a number of financial indices provides a more
comprehensive view of a bank's financial viability than other proposals
submitted in the record that would rely solely on the size of the bank
or its capitalization.
98. The Commission notes that winning bidders have flexibility in
how they structure their letter of credit arrangements with issuing
banks and may choose to obtain multiple letters of credit over the
build-out period. Entities may negotiate all the terms of their letter
of credit with the issuing bank, including the length of the letter of
credit, so long as the letter of credit is available to USAC for the
entire duration of the build-out period and it is at a minimum an
annual letter of credit that follows the terms and conditions of the
Commission's model letter of credit. If a recipient has been issued a
letter of credit from a bank that expires during the build-out period,
that recipient must notify USAC immediately and an approved replacement
letter of credit must be put in place before the letter of credit
expires. If a bank fails so that it is no longer able to honor a letter
of credit or if the bank no longer meets the eligibility requirements
the Commission adopts herein, the recipient must notify USAC and will
have 30 days to secure a letter of credit from another issuing bank
that meets the Commission's eligibility requirements. The Commission
also reserves the right to temporarily cease disbursements of monthly
support until a recipient submits to the Commission a new letter of
credit that meets its requirements and note that winning bidders will
be subject to non-compliance measures if they fail to obtain a new and
acceptable letter of credit.
99. Letter of Credit Commitment Letter. As the Commission required
for the Mobility Fund Phase I, Tribal Mobility Fund Phase I, and the
rural broadband experiments, winning bidders will be required to submit
a letter from an acceptable bank committing to issue an irrevocable
stand-by letter of credit, in the required form, to that entity as part
of the long-form process. The commitment letter will at a minimum
provide the dollar amount of the letter of credit and the issuing
bank's agreement to follow the terms and conditions of the Commission's
model letter of credit, found in Appendix B.
100. Value of Letter of Credit. When a winning bidder first obtains
a letter of credit, it must be at least equal to the first year of
authorized support. Before the winning bidder can receive its next
year's support, it must modify, renew, or obtain a new letter of credit
to ensure that it is valued at a minimum at the total amount of money
that has already been disbursed plus the amount of money that is going
to be provided in the next year. The Commission concludes that
requiring recipients to obtain a letter of credit on at least an annual
basis will help minimize administrative costs for USAC and the
recipient rather than having to negotiate a new letter of credit for
each disbursement.
101. Recognizing that the risk of a default will lessen as a
recipient makes progress towards building its network, the Commission
finds that it is appropriate to modestly reduce the value of the letter
of credit in an effort to reduce the cost of maintaining a letter of
credit as the recipient meets certain service milestones. Specifically,
once an entity meets the 60 percent service milestone that entity may
obtain a new letter of credit or renew its existing letter of credit so
that it is valued at 90 percent of the total support amount already
disbursed plus the amount that will be disbursed the next year. Once
the entity meets the 80 percent service milestone that entity may
obtain a new letter of credit valued at 80 percent of the total support
amount already
[[Page 44428]]
disbursed plus the amount that will be disbursed the next year. The
Commission concludes that the benefit to recipients of potentially
decreasing the cost of the letter of credit as it becomes less likely
that a recipient will default outweighs the potential risk that if a
recipient does default and is unable to cure, the Commission will be
unable to recover a modest amount of support.
102. The Commission is not persuaded, however, that it should
further reduce the value of the letter of credit so that it only covers
50 percent of the total of support disbursed throughout the build-out
period. The Commission concludes that the approach it adopts is better
calibrated to the potential risk of default because it takes into
account the substantial performance of the recipient. While the
Commission acknowledges that reducing the value of the letter of credit
to 50 percent of the amount of support disbursed would further reduce
the costs for some recipients, it finds that on balance accomplishing
the Commission's duty as stewards of the public's funds by ensuring
that it can recover a substantial percentage of the support the
Commission disburses in the event that an entity is not using the
support for its intended use outweighs the potential costs for
participants.
103. Applicability to All Winning Bidders. The Commission is not
persuaded that it should exempt existing ETCs that already receive
high-cost support from the letter of credit requirement. As the
Commission concluded in the Rural Broadband Experiments Order,
requiring all entities to obtain a letter of credit is a necessary
measure to ensure that it can recover support from any recipient that
cannot meet the build-out obligations for the Phase II competitive
bidding process. Compliance with existing universal service rules does
not necessarily guarantee that an entity is financially qualified to
undertake the obligations of the Phase II competitive bidding process.
Moreover, requiring all winning bidders to obtain a letter of credit
ensures that all bidders are subject to the same default process if
they do not meet the required service milestones.
104. Costs of Letters of Credit. The Commission continues to
believe that the advantages of letters of credit in ensuring that
Connect America support can be quickly reclaimed to protect ratepayers'
contribution to the universal service fund, and that the support is
protected from being included in a bankruptcy estate, outweigh the
potential costs of obtaining letter of credit. While the Commission
understands that the requirement will impose costs on participants, it
expects that all entities will factor the cost of letters of credit
into their bids. Moreover, the Commission anticipates that its decision
to tailor the requirement so that the letter of credit will remain open
for only the build-out period and modestly reduce the value of the
letter of credit as the recipient meets certain service milestones will
lessen the cost of maintaining a letter of credit. The Commission also
expects that by expanding the pool of eligible issuing U.S. banks to
approximately 3,600 and also permitting entities to obtain a letter of
credit from CFC, a bank that has an established relationship with a
number of small entities, will potentially further reduce the costs of
obtaining a letter of credit.
105. Tribal Nations and Tribally-Owned Applicants. For the same
reasons the Commission articulated in the Rural Broadband Experiments
Order, the Commission recognizes there may be a need for greater
flexibility regarding letters of credit for Tribally-owned and -
controlled winning bidders. Thus, if any Tribal Nation or Tribally-
owned and -controlled applicant for the Phase II competitive bidding
process is unable to obtain a letter of credit, it may file a petition
for a waiver of the letter of credit requirement. Waiver applicants
must show, with evidence acceptable to the Commission, that the Tribal
Nation is unable to obtain a letter of credit because of limitations on
the ability to collateralize its real estate, that Phase II support
will be used for its intended purposes, and that the funding will be
used in the best interests of the Tribal Nation and will not be wasted.
Tribal applicants could establish this showing by providing, for
example, a clean audit, a business plan including firm financials with
projections of how construction will be funded, provision of financial
and accounting data for review (under protective order, if requested),
or other means to assure the Commission that the winning project is a
viable project.
c. ETC Designation Documentation
106. Consistent with the Commission's decision to require winning
bidders to obtain ETC designation from the relevant states or the
Commission as applicable, as discussed more fully below the Commission
will also require entities to submit appropriate documentation in their
long-form application of their ETC designation in all areas for which
they will receive support within 180 days of being announced as a
winning bidder. In addition to submitting the relevant state or
Commission orders, each winning bidder should provide documentation
showing that the designated areas (e.g., census blocks, wire centers,
etc.) cover its winning bid areas so that it is clear that the
applicant has ETC status in each winning bid area. For example, the
obligation may be satisfied by providing maps of the recipient's ETC
designation area, map overlays of the winning bid areas, or charts
listing designated areas. Additionally, the Commission will require
winning bidders to submit a letter with their documentation from an
officer of the company certifying that their ETC designation for each
state covers the relevant areas where the winning bidders will receive
support. These requirements will help the Commission verify that each
winning selected bidder is authorized to operate in the areas where it
will be receiving support. The Commission does not anticipate that this
requirement will impose an unreasonable burden on winning bidders given
that it expects they will conduct their own due diligence review to
ensure that their existing or new ETC designations cover their awarded
areas.
3. Forfeiture
107. Discussion. The Commission concludes that any entity that
files a short-form application to participate in the Phase II
competitive bidding process will be subject to a forfeiture in the
event of a default before it is authorized to begin receiving support.
The Commission will impose a forfeiture in lieu of a default payment.
Specifically, the Commission concludes that a base forfeiture per
violation of $3,000, subject to adjustment based on the criteria set
forth in the Commission's forfeiture guidelines, is appropriate in
these circumstances given that the failure to supply the required
information will prevent the Bureau from assessing a winning bidder's
qualifications. A $3,000 base forfeiture amount is equivalent to the
base forfeiture that is imposed for failing to file required forms or
information with the Commission. While, as the Commission explains
below, not all defaults will relate to the failure to submit the
required forms or information, it concludes that for administrative
simplicity and to provide bidders with certainty as to the base
forfeiture that will apply for all pre-authorization defaults, it is
reasonable to subject all bidders to the same $3,000 base forfeiture
per violation.
108. An entity will be considered in default and will be subject to
forfeiture if it fails to timely file a long-form
[[Page 44429]]
application or meet the document submission deadlines outlined above or
is found ineligible or unqualified to receive Phase II support by the
Bureaus on delegated authority, or otherwise defaults on its bid or is
disqualified for any reason prior to the authorization of support. The
Commission notes that a winning bidder will be subject to the base
forfeiture for each separate violation of the Commission's rules. For
purposes of the Phase II competitive bidding process, the Commission
defines a violation as any form of default with respect to the minimum
geographic unit eligible for bidding. In other words, there shall be
separate violations for each geographic unit subject to a bid. That
will ensure that each violation has a relationship to the number of
consumers affected by the default, but is not unduly punitive. Such an
approach will also ensure that the total forfeiture for a default is
generally proportionate to the overall scope of the winning bidder's
bid. To ensure that the amount of the base forfeiture is not
disproportionate to the amount of an entity's bid, the Commission also
limits the total base forfeiture to five percent of the bidder's total
bid amount for the support term. For the Mobility Fund and Tribal
Mobility Fund, the Bureaus found that five percent of the total bid
amount provided sufficient incentive for auction participants to fully
inform themselves of the obligations associated with participation in
the auctions without being unduly punitive.
109. The Commission finds that by adopting such a forfeiture, it
will impress upon recipients the importance of being prepared to meet
all of the Commission's requirements for the post-selection review
process and emphasize the requirement that they conduct a due diligence
review to ensure that they are qualified to participate in the Phase II
competitive bidding process and meet its terms and conditions.
VI. ETC Designation
110. In this section, the Commission adopts more specific details
related to the implementation of the ETC designation requirement for
the Phase II competitive bidding process. First, the Commission
requires winning bidders in the Phase II competitive bidding process to
submit proof of their ETC designation within 180 days of the public
notice announcing them as winning bidders. Second, the Commission
concludes that forbearance from the section 214(e)(5) service area
conformance requirement for recipients of the Phase II competitive
bidding process is appropriate and in the public interest.
A. ETC Designation Timing
111. Discussion. As noted above, the Commission will require
winning bidders for the Phase II competitive bidding process to submit
proof of their ETC designation as part of the long-form application
process. Such proof must be submitted within 180 days of the public
notice announcing them as winning bidders. Failure to obtain ETC status
and submit the required documentation by the deadline is an event of
default.
112. In the rural broadband experiments, the Commission learned
that while states have diligently pursued resolution of the ETC
designation applications filed by rural broadband experiment
provisionally selected bidders, a number of states were unable to make
a final decision on an ETC designation within a 90-day timeframe, often
due to state-specific procedural requirements or because the
application was contested. Of the 18 provisionally selected bidders
that have been authorized or are still undergoing post-selection
review, only nine were able to submit documentation of their ETC
designations for all of their proposed service areas within the 90-day
timeframe, and several of these entities had existing ETC designations
that already covered their proposed service areas. The Commission
therefore concludes that it would not be appropriate to adopt a
rebuttable presumption that a state commission lacks jurisdiction over
a potential recipient of support merely because the state has failed to
complete an ETC proceeding within 90 days of initiating such a
proceeding.
113. The Commission notes that only a limited number of
provisionally selected bidders were selected for the rural broadband
experiments. In the Phase II competitive bidding process, there may be
situations where there are multiple winning bidders in each state that
do not already have an ETC designation, and the Commission expects that
states will need to have more time to address multiple petitions. On
balance, the Commission concludes that 180 days should provide states
with enough time to consider ETC designation applications, without
unreasonably delaying the authorization of Phase II support and
commencement of broadband deployment to consumers lacking service.
114. In the event the bidder is unable to obtain the necessary ETC
designations within 180 days, the Commission finds that it would be
appropriate to waive the 180-day timeframe if the bidder is able to
demonstrate that it has engaged in good faith efforts to obtain an ETC
designation, but the proceeding is not yet complete. A waiver of the
180-day deadline would be appropriate if, for example, an entity has an
ETC application pending with a state and the state's next scheduled
meeting at which it would consider the ETC application will occur after
the 180-day window. This is consistent with the general approach the
Commission took in the rural broadband experiments.
115. The Commission declines to adopt a hard rule requiring a
winning bidder to file an ETC application within a specified amount of
time to be considered acting in good faith, because, as it found in the
rural broadband experiments, there were various circumstances impacting
the ability of individual bidders to file their ETC applications. The
Commission expects that winning bidders will have an incentive to file
their ETC applications expeditiously so that they can meet the
requirements to begin receiving support as soon as possible. Instead,
based on what the Commission observed in the rural broadband
experiments, when considering waivers of the 180-day timeframe for
obtaining ETC designation, the Commission will presume that an entity
will have acted in good faith if the entity files its ETC application
within 30 days of the release of the public notice announcing that it
is a winning bidder.
116. The Commission is not persuaded that it needs to take the
further step of adopting a rebuttable presumption that a state lacks
jurisdiction in the event that the ETC does not act on a petition
within a certain amount of time or does not make a final decision on a
petition within a certain amount of time. A number of state commenters
explained that they need varying amounts of time to handle ETC
petitions based on their available resources, the complexity of the
application, and whether it is contested. The Commission has found
through its experience with the rural broadband experiments that while
some states may need more time to initiate action and make a decision
on applications, they are committed to acting diligently within the
framework of their existing state processes to act on ETC requests to
expand voice and broadband-capable networks to their residents. The
Commission saw no situations in the rural broadband experiments where a
state refused to initiate action on a petition, took an unreasonable
amount of time to declare that it did not have jurisdiction over a
particular carrier, or
[[Page 44430]]
delayed making a decision on an application for no legitimate reason.
And the Commission notes that any circumstances where a state will need
more time due to procedural requirements or resource issues can be
dealt with through the waiver process outlined above. Accordingly, to
preserve the primary role that Congress gave the states in designating
ETCs, the Commission reaffirms that it will act on an ETC designation
petition pursuant to section 214(e)(6) ``only in those situations where
the carrier can provide the Commission with an affirmative statement
from the state commission or a court of competent jurisdiction that the
carrier is not subject to the state commission's jurisdiction.''
117. Due to the Commission's experience with the rural broadband
experiments, the Commission also continues to conclude that there is
nothing in the record before the Commission concerning the designation
of ETCs that would warrant changing the existing framework by adopting
rules requiring states to streamline their review of ETC petitions, or
adopting a rebuttable presumption that states do not have jurisdiction
over certain types of providers for purposes of the Phase II
competitive bidding process. The rural broadband experiments have shown
the Commission that obtaining an ETC designation from a state
commission generally has not been too burdensome for most entities.
Instead, most of the wide variety of entities that submitted bids and
were provisionally selected did not face unreasonable delays in
obtaining ETC designations. The Commission notes that a number of
states acted on ETC applications that were submitted by WISPs, and only
two states concluded that they lacked jurisdiction over particular
providers, two that are WISPs that would provide VoIP service and one
that is an electric company. Accordingly, the Commission is not
persuaded that it should disturb the statutory construction giving
states primary jurisdiction in designating ETCs. The Commission also
notes that requiring that all entities seek ETC designation from the
relevant states first rather than going straight to the Commission will
ensure that all participants in the Phase II competitive bidding
process must follow the same procedural requirements for submitting an
application to obtain an ETC designation.
118. The Commission also declines to automatically grant petitions
after they have been pending with the states for a certain amount of
time. Determining whether an entity is qualified to become an ETC is a
fact-intensive inquiry, and the more complex and contested petitions
are likely to take more time. It would be adverse to the public
interest to forgo this inquiry into an entity's qualifications simply
because an application is taking more time to review.
B. Forbearance From Service Area Redefinition Process
119. Discussion. The Commission now concludes that forbearance from
the section 214(e)(5) service area conformance requirement for
recipients of the Phase II competitive bidding process is appropriate
and in the public interest. As the Commission discusses in more detail
below, the Commission has decided that it is a more efficient use of
Connect America support to provide support to only one provider in a
given geographic area in exchange for that provider's commitment to
offer service that meets the Commission's requirements throughout the
funded area. If the rural telephone affiliate of a price cap carrier
declines the offer of support and another entity is selected as the
winning bidder to serve a portion of its area through the competitive
bidding process, the incumbent will be replaced by the Phase II
competitive bidding recipient in those areas, and the incumbent's
legacy service area will no longer be a relevant consideration in
determining where the winning bidder should be designated as an ETC.
120. Accordingly, for those entities that obtain ETC designations
as a result of being selected as winning bidders for the Phase II
competitive bidding process, the Commission forbears from applying
section 214(e)(5) of the Act and section 54.207(b) of its rules,
insofar as those sections require that the service area of such an ETC
conform to the service area of any rural telephone company serving an
area eligible for Phase II support. The Commission notes that
forbearing from the service area conformance requirement eliminates the
need for redefinition of any rural telephone company service areas in
the context of the Phase II competitive bidding process. However, if an
existing ETC seeks support through the Phase II competitive bidding
process for areas within its existing service area, this forbearance
will not have any impact on the ETC's pre-existing obligations with
respect to other support mechanisms and the existing service area.
121. The Commission concludes that forbearance is warranted in
these limited circumstances. As the Commission noted above, its
objective is to distribute support to winning bidders as soon as
possible so that they can begin the process of deploying new broadband
to consumers in those areas. Case-by-case forbearance would likely
delay its post-selection review of entities once they are announced as
winning bidders. The Act requires the Commission to forbear from
applying any requirement of the Act or its regulations to a
telecommunications carrier if the Commission determines that: (1)
Enforcement of the requirement is not necessary to ensure that the
charges, practices, classifications, or regulations by, for, or in
connection with that telecommunications carrier or telecommunications
service are just and reasonable and are not unjustly or unreasonably
discriminatory; (2) enforcement of that requirement is not necessary
for the protection of consumers; and (3) forbearance from applying that
requirement is consistent with the public interest. The Commission
concludes each of these statutory criteria is met for winning bidders
of the Phase II competitive bidding process.
122. Just and Reasonable. The Commission concludes that compliance
with the service area conformance requirement of section 214(e)(5) of
the Act and section 54.207(b) of the Commission's rules is not
necessary to ensure that the charges, practices, and classifications of
carriers designated as ETCs in areas for which support is authorized
through the Phase II competitive bidding process are just and
reasonable and not unjustly or unreasonably discriminatory. As
discussed below, the Commission finds that the three factors
traditionally taken into account by the Commission and the states when
reviewing a potential redefinition of a rural service area pursuant to
section 214(e)(5) of the Act no longer apply in the context of
designating ETCs in areas for which support is authorized through a
Phase II competitive bidding process. Moreover, all ETCs--whether rural
ETCs or other entities designated as ETCs in areas eligible for Phase
II competitive bidding support in order to receive such support--will
continue to be subject to the requirements of the Act and of the
Commission's rules that consumers have access to reasonably comparable
services at reasonably comparable rates. In fact, as the Commission
discusses below, the expansion of voice and broadband-capable networks
into these unserved Phase II areas may expand the choice of
telecommunications services for consumers living in areas located near
the Phase II funded areas. The resulting competition is likely to help
ensure just, reasonable, and nondiscriminatory offerings of services.
[[Page 44431]]
For these reasons, the Commission finds that the first prong of section
10(a) is met.
123. Consumer Protection. The Commission also concludes that it is
not necessary to apply the service area conformance requirement to a
winning bidder in the Phase II competitive bidding process to protect
consumers. Forbearance from the service area conformance requirement in
these limited circumstances will not harm consumers currently served by
the rural telephone companies in the relevant service areas. To the
contrary, these consumers will benefit because an entity that replaces
the incumbent rural telephone company as the only ETC receiving support
to serve the area will be required to use its Phase II competitive
bidding process support to expand voice and broadband-capable networks
with service quality that meets the Commission's requirements.
Moreover, Phase II recipients, like all ETCs, will be required to
certify that they will satisfy applicable consumer protection and
service quality standards in their service areas. For these reasons,
the Commission finds that the second prong of section 10(a) is met.
124. Public Interest. The Commission concludes that it is in the
public interest to forbear from the service area conformance
requirement in these limited circumstances. As the Commission explained
above, by deciding to distribute Phase II support through a competitive
bidding mechanism and eliminating the identical support rule, the
Commission has set up a system under which only one ETC will receive
support to serve Phase II eligible areas. In circumstances where the
incumbent declines the offer and does not win support (either because
it does not bid, or is outbid by another provider), the Commission has
decided that the competitive winner will replace the incumbent as the
only provider that will be required to provide supported services in
that area in exchange for receiving support. The Commission notes that
if the incumbent price cap carrier chooses not to bid or loses in the
competitive bidding process and is replaced by the Phase II auction
winning bidder, it will no longer have the federal ETC obligation to
provide voice service in that area and it can apply for permission to
discontinue its provision of voice service through the section 214(a)
discontinuance process, and relinquish its ETC designation for those
areas pursuant to section 214(e)(4). Thus, a rural telephone carrier's
service area is no longer a relevant consideration in determining where
a Phase II competitive bidding process recipient should be designated
as an ETC.
125. Accordingly, the analysis that the relevant state and the
Commission historically undertook when deciding whether to redefine a
rural telephone carrier's service area is not applicable to the Phase
II competitive bidding process. Past concerns that an ETC serving only
a relatively low cost portion of a rural carrier's service area might
cream skim by receiving per line support based on the rural carrier's
cost of serving the entire area are not relevant to Phase II support,
which will be awarded through a competitive process. The incumbent
rural telephone company will no longer be receiving support to serve
the area won by another entity, the Phase II recipient's support will
be based on the amount it bids to serve the area, and the Phase II
recipient will be required to use its support to serve areas that the
marketplace will not serve absent those subsidies. Because the service
area redefinition analysis is not relevant to Phase II, it no longer
serves the public interest for the states and the Commission to work
together to define the service area of Phase II recipients serving
rural telephone companies' service areas. The Commission notes that the
actions it takes today do not otherwise impact the state's primary role
in designating ETCs.
126. Similarly, the concerns about protecting rural carriers and
avoiding the imposition of additional administrative burden on such
carriers that led to the adoption of the service area conformance
requirement nearly two decades ago are not applicable in these limited
circumstances. First, the Commission notes that the affected incumbent
rural telephone companies are affiliated with price cap holding
companies, which typically serve both rural and urban areas. Second,
each incumbent rural telephone company will not be automatically
replaced by a competitive provider. Each price cap carrier holding
company had the opportunity to accept model-based support and be the
sole Connect America-supported provider throughout its territory. The
price cap carrier holding company will also have the opportunity to
compete so that Connect America support is provided to the most
efficient provider. Only if the price cap carrier holding company
chooses not to participate in the Phase II competitive bidding process
or loses to a competitive carrier will it be replaced by a competitive
provider as the sole recipient of Connect America support. Finally, the
Commission notes that its decision to grant forbearance in these
limited circumstances does not impose any additional administrative
requirements on rural telephone companies.
127. The Commission also notes that requiring each Phase II
recipient to conform its service areas to those of the rural telephone
companies in the states they seek to serve could result in lengthy
redefinition proceedings, which may delay the Commission's post-
selection review of winning bidders and consequently delay its
distribution of support and the deployment of advanced voice and
broadband-capable networks. Some rural broadband experiment
provisionally selected bidders found that it was time-consuming to
obtain ETC designations in circumstances where the incumbent rural
telephone company challenged their ETC petitions. The Commission
expects that the forbearance it provides here will help accelerate the
ETC designation process when applications are challenged because the
state commission will not need to seek the Commission's agreement
through a service redefinition process or wait 90 days for the service
redefinition to be automatically granted if the Commission is unable to
act within 90 days.
128. Finally, the Commission concludes that the forbearance in
these limited circumstances will not harm competitive market
conditions. If anything, forbearance may enhance competition by
introducing new service providers to the market. Price cap carriers
that have an existing network and customers in the areas won by another
entity may choose to continue to operate in those areas, albeit without
subsidies. And as the Phase II recipient is building a network in its
funded areas, it may also find that it has a business case to build its
network and provide service to customers in surrounding areas, thereby
increasing competition and providing more options for consumers.
VII. Accountability and Oversight
129. In this section the Commission adopts measures for ensuring
that recipients of Connect America support to serve fixed locations
awarded through a competitive bidding process use their support for its
intended purposes. First, the Commission adopts reporting requirements
that will enable the Commission to monitor recipients' progress in
meeting their deployment obligations. Second, the Commission explains
how the letter of credit requirement it adopts above will work with the
existing support reduction framework it adopted in the December 2014
Connect America Order to
[[Page 44432]]
calibrate support reductions to the extent of a recipient's non-
compliance with its build-out obligations. Finally, the Commission
clarifies that for the section 54.314 certification, the relevant
states or ETCs may certify that support was used for its intended
purpose for a given year if it is set aside in an account dedicated
specifically for upgrades necessary to meet the relevant requirements.
A. Monitoring Progress in Meeting Deployment Obligations
130. Discussion. The Commission concludes that the public interest
will be served by adopting reporting requirements for recipients of
support to serve fixed locations awarded through a competitive bidding
process comparable to that adopted for price cap carriers accepting
model-based support and rate-of-return carriers. These reporting
obligations will enhance the Commission's ability to monitor the use of
Connect America support and ensure that it is being used for its
intended purposes. Specifically, the Commission requires such
recipients of support to submit annually the number and list of the
geocoded locations to which they are offering broadband meeting the
requisite requirements with Connect America support in the prior 12-
month period. Because the Commission anticipates that recipients will
use a variety of technologies and it would be useful to understand what
types of networks ETCs are deploying so that it can monitor the use of
Connect America support, it also requires that the list specify the
types of technology (e.g., fixed wireless, fiber) that is being used to
offer service to each location.
131. The first location list will be due by the last business day
of the second calendar month following the one-year anniversary of
support authorization and must reflect the number and list of geocoded
locations (if any) where the recipient already was offering service
meeting the Commission's requirements and all new locations (if any)
where the recipient was offering service meeting the requisite
requirements by the end of the first year. Phase II auction recipients
will then be required to submit a list of locations where they are
newly offering service by the last business day of the second calendar
month following each subsequent support year until they have met the
final service milestone. Phase II auction recipients will be free--and
indeed, encouraged--to submit information on a rolling basis throughout
the year to the online portal, as soon as service is offered, so as to
avoid filing all of their locations at the deadline. A best practice
would be to submit the information no later than 30 days after service
is initially offered to locations in satisfaction of deployment
obligations, to avoid any potential issues with submitting large
amounts of information at year end.
132. The Commission will also require that Phase II auction
recipients file certifications that they have met their interim service
milestones and are meeting the requisite public interest obligations by
the last business day of the second calendar month following each
relevant service milestone. As noted above, if an entity is able to
build out its network more quickly to offer service and close-out its
letter of credit before the final build-out deadline, it may notify the
Commission at any time that it has met its final service milestone, and
submit its final build-out certification and location list at that
time. This notification will trigger USAC's verification that the
build-out has been completed.
133. The Commission finds that collecting this information from
recipients of support to serve fixed locations awarded through the
competitive bidding process serves the public interest for the same
reasons as collecting this information from price cap carriers and
rate-of-return carriers accepting model-based support. As recommended
by the Government Accountability Office, the Commission and USAC will
analyze the data and determine how Connect America support is being
used to ``improve broadband availability, service quality, and
capacity.'' As the Commission has already decided, these data will also
be made publicly available at a granular level and in a user friendly
manner. The Commission finds that the benefits in collecting this
information outweigh any potential burdens on the recipients in
reporting these data, given that the Commission expects that recipients
will be already collecting such data for their own business purposes,
to certify that they have met service milestones, and to be prepared to
respond to compliance reviews that it directs USAC to undertake. These
auction recipients that fail to file their location lists and build-out
certifications by the required deadline will be subject to the support
reduction scheme in section 54.316(c) of the Commission's rules.
134. The Commission will also require these auction support
recipients to certify each year after they have met their final service
milestone that the network they operated in the prior year meets the
Commission's performance requirements. Phase II auction recipients will
continue to receive support after they have met their service
milestones. This requirement will ensure that the Commission is able to
monitor that Phase II auction recipients are continuing to use their
Phase II auction support for its intended use, and they are continuing
to offer service meeting the relevant minimum requirements. Because at
this point in their support terms, Phase II auction recipients will no
longer be filing their build-out certifications and locations lists,
the Commission concludes that it is reasonable to collect this
certification in recipients' annual section 54.313 reports due July 1st
that Phase II auction recipients will already be filing each year.
135. The Commission concludes that the benefit to the Commission in
being able to track the progress of Phase II recipients and monitor
their use of the public's funds outweighs the potential costs that will
be imposed on recipients. The Commission expects that Phase II auction
recipients will already be tracking their progress and their expenses
before they have to meet their first service milestone and then
monitoring their network's performance after their build-out is
completed to meet the terms and conditions of Phase II auction support.
Accordingly, the Commission does not anticipate that these additional
reporting requirements will impose unreasonable costs on recipients.
136. The Commission will also require recipients of Phase II
competitive bidding support to identify the total amount of Phase II
support, if any, that they used for capital expenditures in the
previous calendar year. The Commission will collect this information in
recipients' annual section 54.313 reports, recognizing that recipients
will be required to file annual reports throughout their support term.
As the Commission concluded in the December 2014 Connect America Order,
the benefit to the Commission of being able to determine how recipients
are using Phase II funding outweigh any potential burden on those
recipients in submitting this information given that it expects they
will track their capital expenditures for Phase II in the regular
course of business. Such information also may help the Commission
determine whether alternative approaches are necessary to maintain
universal service at the conclusion of the term of Phase II support.
The Commission notes that all Phase II auction recipients should begin
filing their section 54.313 annual reports starting the year after they
begin receiving support. If they have not begun to offer service and
have no
[[Page 44433]]
customers at this time, they will be able to indicate this in the
report.
137. Finally, the Commission will require that in each section
54.313 annual report that is filed by Phase II recipients during their
support term, they will be required to certify that they have available
funds for all project costs that will exceed the amount of support that
will be received from the authorization stemming from the Phase II
auction for the next calendar year. This will give the Commission
assurance that Phase II recipients have obtained enough funding to meet
their Phase II obligations and also underscore Phase II recipients'
obligation to conduct a due diligence review of their finances to
ensure that they can meet their obligations.
138. The Commission provides as an example, an illustrative chart
of the reporting requirements for a bidder in the baseline performance
tier that begins to receive support in September 1, 2017 and takes the
entire six years to build-out its network:
------------------------------------------------------------------------
Support term year Reporting obligations and deadlines
------------------------------------------------------------------------
Year One: Sept. 1, 2017 to Due by July 1, 2018: FCC Form 481,
Aug. 31, 2018. including capex spent if any (reporting
on 2017) and available funds
certification (pertaining to 2019).
Due by Oct. 31, 2018: First location list
indicating locations where service
meeting the Commission's requirements at
time of authorization is already offered
and locations where service newly
offered in the first support year.
Year Two: Sept. 1, 2018 to Due by July 1, 2019: FCC Form 481,
Aug. 31, 2019. including capex spent (reporting on
2018) and available funds certification
(pertaining to 2020).
Due by Oct. 31, 2019: List of locations
where service newly offered in second
support year.
Year Three: Sept. 1, 2019 to Due by July 1, 2020: FCC Form 481,
Aug. 31, 2020. including capex spent (reporting on
2019) and available funds certification
(pertaining to 2021).
Due by Oct. 30, 2020: List of locations
where service newly offered in third
support year; 40% build-out
certification.
Year Four: Sept. 1, 2020 to Due by July 1, 2021: FCC Form 481,
Aug. 31, 2021. including capex spent (reporting on
2020) and available funds certification
(pertaining to 2022).
Due by Oct. 30, 2021: List of locations
where service newly offered in fourth
support year; 60% build-out
certification.
Year Five: Sept. 1, 2021 to Due by July 1, 2022: FCC Form 481,
Aug. 31, 2022. including capex spent (reporting on
2021) and available funds certification
(pertaining to 2023).
Due by Oct. 31, 2022: List of locations
where service newly offered in fifth
support year; 80% build-out
certification.
Year Six: Sept. 1, 2022 to Due by July 1, 2023: FCC Form 481,
Aug. 31, 2023. including capex spent (reporting on
2022) and available funds certification
(pertaining to 2024).
Due by Oct. 31, 2023: List of locations
where service newly offered in sixth
support year; 100% build-out
certification.
All Subsequent Years......... Due by following July 1: FCC Form 481,
including capex spent and service
performance requirement certification
(reporting on the previous calendar
year) and available funds certification
(pertaining to next calendar year; not
required in annual report due the July
1st after the support term has ended).
------------------------------------------------------------------------
139. The Commission directs USAC to review, for these entities that
are authorized to receive support after the Phase II competitive
bidding process, compliance with deployment obligations and the
Commission's public interest obligations at the state level--that is,
whether the carrier is meeting interim and final service obligations
for the total number of locations required for each state. As the
Commission concluded in the December 2014 Connect America Order,
conducting compliance reviews at the state level would be less
administratively burdensome for the Commission, USAC, and recipients of
Phase II support than at the census block level.
140. Finally, the Commission clarifies that price cap carriers that
choose to use Phase II model-based support to deploy to locations in
extremely high-cost census blocks may not use Phase II model-based
support to serve extremely high-cost census blocks that an authorized
Phase II auction recipient will be required to serve. In the USF/ICC
Transformation Order, the Commission gave price cap carriers the
flexibility to use Phase II model-based support to serve census blocks
that are above the extremely high-cost threshold to meet their
commitment to serve a set number of locations. When the Commission
provided this flexibility to meet deployment obligations, it did not
contemplate funding two different carriers to deploy broadband to the
same extremely high cost location. Permitting price cap carriers to use
model-based support to deploy to such extremely high-cost census blocks
would be inconsistent with the Commission's objective for Phase II of
targeting support in the most efficient and effective manner.
Accordingly, once a Phase II winning bidder has been authorized to
begin receiving Phase II support to serve an extremely high-cost census
block, a price cap carrier will not be able to count locations that are
located in that census block towards its remaining Phase II model-based
support service milestones.
141. The Commission directs USAC to review the geocoded locations
lists that are submitted by the price cap carriers regarding deployment
to verify that no extremely high-cost locations are located in census
blocks where a Phase II auction recipient has been authorized to begin
receiving support. In other words, as of the date of authorization for
another entity to serve a census block, that census block is no longer
eligible for substitution of locations. If USAC determines that a price
cap carrier has included such locations in its list to count towards
its build-out obligation, that price cap carrier will be deemed to have
not met the relevant Phase II model-based support build-out obligation
and will be subject to the applicable non-compliance measures.
142. As ETCs comply with the new public interest and reporting
requirements and broadband public interest obligations in this Order,
the Commission will continue to monitor their behavior and performance.
Based on that experience, the Commission may make additional
modifications as necessary to its reporting requirements.
B. Section 54.314 Certifications
143. Discussion. The Commission clarifies that for the section
54.314 certification, using high-cost support (i.e. Connect America
Fund support) for
[[Page 44434]]
the intended purpose in a given calendar year may include setting aside
the high-cost support received but not spent in that calendar year in
an account dedicated specifically for upgrades necessary to meet the
relevant high-cost requirements. All high-cost recipients should be
prepared to demonstrate to a state making such a certification on their
behalf, or to the Commission or USAC upon request, that any unspent
high-cost support was kept in such an account until it was spent.
144. The Commission previously has recognized that the first task
for any major network upgrade is to complete an overall plan and then
undertake detailed engineering analyses in the field to plan the
construction of particular routes. Depending on the timing of funding
authorization for recipients of high-cost support, it is possible that
in the initial year of support, an ETC may not be able to spend the
funding that is disbursed. Moreover, with any network upgrade,
construction over the course of the deployment timetable will be
dependent on the availability of necessary equipment, fiber, and
construction crews. In some cases, weather may require construction
projects to be deferred over the winter into the following spring. The
Commission also has acknowledged that a price cap carrier may not
deploy new facilities in every state in every year of the Phase II
term. Accordingly, the Commission concludes that it is permissible for
high-cost recipients to certify or have the relevant states certify on
their behalf that they have used their support for its intended purpose
if they have set aside a portion or all of the high-cost support in a
given year in an account dedicated to future high-cost improvements, as
described above.
C. Measures for Non-Compliance
145. Discussion. The Commission adopts the process by which the
Wireline Competition Bureau or the Wireless Telecommunications Bureau
will authorize USAC to draw on the letter of credit to recover all of
the support that has been disbursed in the event that the Phase II
competitive bidding process recipient does not meet the relevant
service milestones. In the December 2014 Connect America Order, the
Commission determined that USAC would recover support from ETCs
associated with their compliance gap in three separate circumstances.
If after six months, the ETC fails to repay in full, either the
Wireline Competition Bureau or the Wireless Telecommunications Bureau
will issue a letter authorizing USAC to draw on the letter of credit to
recover 100 percent of the support that has been disbursed to the ETC.
146. First, for interim milestones, if the ETC has a compliance gap
of 50 percent or more of the number of locations that the ETC is
required to offer service to by the relevant interim milestone (i.e.,
Tier 4 status), USAC will withhold 50 percent of the ETC's monthly
support for that state, and the ETC will be required to file quarterly
reports. If, after having 50 percent of support withheld for six
months, the ETC has not reported that it has a compliance gap of less
than 50 percent (i.e., the ETC is eligible for Tier 3 or lower or is in
compliance), USAC will withhold 100 percent of the ETC's support for
the state and will commence recovery action for a percentage of support
that is equal to the ETC's compliance gap plus 10 percent of the ETC's
support that has been paid to that point. At this point, this ETC will
have six months to pay back the amount of support that USAC seeks to
recover. If at the end of six months the ETC has not fully paid back
the support, the Wireline Competition Bureau or the Wireless
Telecommunications Bureau will issue a letter to that effect and USAC
will draw on the letter of credit to recover all of the support that
has been disbursed to the ETC. If at any point during the six-year
period for deployment the ETC reports that it is eligible for Tier 1
status, the ETC will have its support fully restored including any
support that had been withheld, USAC will repay any funds that were
recovered, and the ETC will move to Tier 1 status.
147. Second, if an ETC misses the final milestone, it must identify
by what percentage the milestone has been missed. It will then have 12
months from that date to come into full compliance with the milestone.
If it does not come into full compliance within 12 months, the Wireline
Competition Bureau or the Wireless Telecommunications Bureau will issue
a letter and USAC will recover an amount of support that is equal to
1.89 times the average amount of support per location received in the
state over the six-year period for the relevant number of locations the
ETC has failed to offer service to, plus 10 percent of the ETC's total
Phase II support received in the state over the six-year period for
deployment. At this point, the ETC will have six months to repay the
support USAC seeks to recover. If at the end of six months the ETC has
not fully paid back the support, the Wireline Competition Bureau or the
Wireless Telecommunications Bureau will issue a letter to that effect,
and USAC will draw on the letter of credit to recover all of the
support that has been disbursed to the ETC.
148. Third, if after the build-out has been verified and the ETC
closes its letter of credit it is determined that the ETC does not have
sufficient evidence to demonstrate that it is offering service to the
total number of required locations, USAC will recover an amount of
support that is equal to 1.89 times the average amount of support per
location received in the state over the six-year period for the
relevant number of locations for which the ETC has failed to produce
sufficient evidence, plus 10 percent of the ETC's total support
received in that state over the six-year time period. Because the ETC's
build-out will have already been verified before it may close its
letter of credit, the Commission does not find it necessary to require
that the ETC continue to keep its letter of credit open in the event
that the ETC does not repay the Commission after it is found to be
lacking evidence. Instead, the Commission notes that if the ETC does
not repay the Commission after six months it may be subject to
additional non-compliance measures, including forfeitures.
149. The Commission concludes that drawing on the letter of credit
in the event that the ETC fails to repay the support that USAC is
instructed to recover will ensure that the Commission will be able to
recover the support in the event that the ETC is unable to pay. The
Commission notes that through the support reduction framework the
Commission adopted in the December 2014 Connect America Order, the ETC
will have a number of opportunities to cure before the Commission will
seek to recover the support that is associated with the compliance gap.
And the Commission will only recover 100 percent of the support that
has been disbursed in those cases where the ETC is unable to repay the
support associated with its compliance gap. Because an ETC that is
unable to repay the support is also unlikely to be able to meet its
obligations to use the support to offer service meeting the
Commission's requirements, recovering 100 percent of the support will
allow the Commission to re-award the support through an alternative
mechanism to an ETC that will be able to meet its obligations.
150. Finally, the Commission notes that Phase II auction recipients
may also be subject to other sanctions for non-compliance with the
terms and conditions of high-cost funding, including, but not limited
to potential revocation of ETC designation and
[[Page 44435]]
suspension or debarment. Phase II auction recipients will also be
subject to any non-compliance measures that are adopted in conjunction
with a methodology for high-cost recipients to measure and report speed
and latency performance to fixed locations.
VIII. Remote Areas Fund
151. Discussion. While the Commission previously decided to include
census blocks that are deemed to be extremely high-cost in the Phase II
auction, it recognizes that not all of those areas will receive bids.
Moreover, the Commission recognizes that there may not be winning
bidders for all of the high-cost census blocks in the declined states
that are included in the Phase II auction. At the same time, the
Commission also recognizes that in the intervening period, it is
possible that some areas will become served through market forces and
will not require ongoing support from the universal service fund. The
Commission now adopts a framework and rules herein to ensure the
Commission moves expeditiously to implement a Remote Areas Fund for
those areas that remain unserved with broadband after the Phase II
auction. These areas will comprise, in effect, the ``remote areas''
where the Commission will target Remote Areas Fund support. The
Commission's objective is to bring broadband to these unserved areas
across the country as soon as possible.
152. The Commission concludes that it will award support for the
Remote Areas Fund through a competitive bidding process, with providers
receiving support to serve defined areas that remain unserved with
broadband service meeting the Commission's public interest obligations,
determined based on the most recent publicly available FCC Form 477
data available prior to the opening of the filing window for short-form
applications. For several reasons, the Commission concludes that it
will be most efficient to award support from the Remote Areas Fund to
serve a designated area through a competitive bidding process, rather
than as a portable consumer subsidy. The Commission expects that the
competitive process will drive down the amount of support awarded to
serve these remote locations, enabling the Commission to utilize its
Remote Areas funding most effectively. The Commission also believes
this approach will best provide incentives for providers to deploy
broadband-capable infrastructure in these remote areas. The Commission
recognizes the need for service providers to have some assurance that
there will be sufficient demand in these remote areas to warrant making
the necessary investments to extend service, and by awarding support to
serve a given area, bidders will be able to aggregate demand
sufficiently to warrant the investments necessary to serve such areas.
The Commission notes that a number of bidders in the rural broadband
experiments were ultimately authorized to begin receiving support in
category 3 which was limited to bids for only extremely high-cost
census blocks, suggesting that these bidders were able to put together
bids that enabled them to make a business case to serve the highest
cost areas. Lastly, by moving swiftly to auction support from the
Remote Areas Fund utilizing many of the same processes and procedures
established for the Phase II auction, the Commission will bring service
to consumers more quickly than would likely be the case if it were to
adopt an approach that has never been implemented to date in the high-
cost program. The Commission does not rule out the possibility of
implementing some form of a portable consumer subsidy at a future date,
however, should there remain areas after the Remote Areas Fund auction
that remain unserved.
153. The areas eligible for the Remote Areas Fund auction will
generally be those areas not subject to winning bids in the Phase II
auction that are not served with voice and 10/1 Mbps broadband
according to the most recently published FCC Form 477 data that are
available prior to the opening of the expedited filing window for
applicants for the Remote Areas Fund auction. The Commission directs
the Bureau to publish the list of eligible areas within 60 days after
the announcement of winning bidders in the Phase II auction. The
Commission reserves the right to make further adjustments to the
eligible areas based on lessons learned from the Phase II auction,
however, and its progress in implementing other Connect America Fund
reforms in the intervening period.
154. The Commission's goal is to commence the Remote Areas Fund
auction within a year of the close of the Phase II Auction. The
specific dates and deadlines will be announced in a Remote Areas Fund
Auction Procedures Public Notice after the Phase II auction.
155. The Commission intends that the Remote Areas Fund auction will
occur as soon as feasible after the Phase II auction, providing for a
limited period of time in between so that applicants that may wish to
participate in both auctions may plan and prepare for the Remote Areas
auction taking into account winning bids in the Phase II auction.
Bidders qualified to bid in the Phase II auction will be able
automatically to participate in this subsequent auction without having
to file another short-form application, so long as there is no material
change in any information filed in their Phase II short-form
application.
156. Consistent with the rules established for the Phase II
competitive bidding process, the Commission will not require bidders to
be ETCs in order to bid in the Remote Areas Fund auction. Rather, they
may obtain ETC designation after being selected as a winning bidder.
The Commission finds this will serve the public interest for the same
reasons previously stated when it adopted these measures for Phase II.
Similarly, the Commission adopts the same timelines for submitting
proof of ETC designation for Remote Areas Fund winning bidders for the
same reasons stated above for the Phase II auction.
157. Similarly, the Commission adopts rules providing for a short-
form application process to qualify entities eligible to bid and a
long-form application to be filed by winning bidders that are similar
in substance to the rules adopted above for the Phase II auction. As
the Commission stated above, this approach will balance the need to
collect essential information with administrative efficiency and will
provide the Commission with assurance that interested participants are
qualified to meet the terms and conditions of the Remote Areas Fund, if
authorized to receive support. The Commission delegates authority to
the Bureaus to adjust the format and timing of the Remote Areas Fund
applications based on experience gained with the implementation of the
Phase II auction. The Commission's goal is to conduct the Remote Areas
Fund auction generally utilizing the same format and procedures adopted
for the Phase II auction, although the Commission recognizes that some
adjustments may need to be made.
158. As a general matter, support from the Remote Areas Fund will
be awarded on similar terms and subject to the same rules as Phase II
support awarded through the Phase II auction. The Commission expects
that recipients will be subject to the same interim and final service
milestones as Phase II auction winners, although it reserves the right
to make adjustments if necessary to encourage auction participation.
Recipients will be subject to the same reporting obligations as Phase
II recipients and subject to the same measures for non-compliance. The
Commission expects, however, that it may be necessary to relax
performance
[[Page 44436]]
standards for the Remote Areas Fund. The Commission may make further
adjustments as needed, based on what it learns from the Phase II
auction.
159. The Commission does not decide at this time a number of issues
that will need to be resolved before it can implement the Remote Areas
Fund, including the public interest obligations for recipients of
support, the term of support for the Remote Areas Fund, and whether to
disburse support on a per-subscriber basis or a per-location basis. The
Commission will decide those issues once it observes the outcome of the
Phase II auction.
IX. Procedural Matters
A. Paperwork Reduction Act Analysis
160. This document contains new information collection requirements
subject to the PRA. It will be submitted to the Office of Management
and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the
general public, and other Federal agencies will be invited to comment
on the new information collection requirements contained in this
proceeding. In addition, the Commission notes that pursuant to the
Small Business Paperwork Relief Act of 2002, it previously sought
specific comment on how the Commission might further reduce the
information collection burden for small business concerns with fewer
than 25 employees. The Commission describes impacts that might affect
small businesses, which includes most businesses with fewer than 25
employees, in the Final Regulatory Flexibility Analysis (FRFA) in
Appendix C, infra.
B. Congressional Review Act
161. The Commission will send a copy of this Report and Order to
Congress and the Government Accountability Office pursuant to the
Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).
C. Final Regulatory Flexibility Analysis
162. As required by the Regulatory Flexibility Act of 1980 (RFA),
as amended, an Initial Regulatory Flexibility Analyses (IRFA) was
incorporated in the Further Notice of Proposed Rulemaking adopted in
November 2011 (USF/ICC Transformation FNPRM) and the Further Notice of
Proposed Rulemaking adopted in April 2014 (April 2014 Connect America
FNPRM). The Commission sought written public comment on the proposals
in the USF/ICC Transformation FNPRM, 76 FR 78384, December 16, 2011 and
April 2014 Connect America FNPRM, 79 FR 39196, July 9, 2014, including
comment on the IRFAs. The Commission did not receive any relevant
comments in response to these IRFAs. This Final Regulatory Flexibility
Analysis (FRFA) conforms to the RFA.
1. Need for, and Objectives of, the Report and Order
163. Over the last several years, the Commission has engaged in a
modernization of its universal service regime to support networks
capable of providing voice and broadband, including developing a new
forward-looking cost model to calculate the cost of providing service
in rural and high-cost areas. In 2015, 10 price cap carriers accepted
an offer of Phase II support calculated by a cost model in exchange for
a state-level commitment to deploy and maintain voice and broadband
service in the high-cost areas in their respective states. With this
Report and Order (Order), the Commission now adopts rules to implement
a competitive bidding process for Phase II of the Connect America Fund.
164. Specifically, building on decisions already made by the
Commission, in this Order, the Commission:
Adopt public interest obligations for recipients of
support awarded through the Phase II competitive bidding process, that
will be known in advance of the auction and that will continue for the
duration of the term of support, recognizing that competitive bidding
is likely to be more efficient if potential bidders know what their
performance standards will be before bids are made. In particular, the
Commission establishes four technology-neutral tiers of bids available
for bidding with varying speed and usage allowances, all at reasonably
comparable rates, and for each tier will differentiate between bids
that would commit to either lower or higher latency.
[cir] The Commission's minimum performance tier requires that
bidders commit to provide broadband speeds of at least 10 Mbps
downstream and 1 Mbps upstream (10/1 Mbps) and offer at least 150
gigabytes (GB) of monthly usage.
[cir] The Commission's baseline performance tier requires that
bidders commit to provide at least 25 Mbps downstream and 3 Mbps
upstream (25/3 Mbps) and offer a minimum usage allowance of 150 GB per
month, or that reflects the average usage of a majority of fixed
broadband customers, using Measuring Broadband America data or a
similar data source, whichever is higher.
[cir] The Commission's above-baseline performance tier requires
that bidders commit to provide at least 100 Mbps downstream and 20 Mbps
upstream (100/20 Mbps) and offer an unlimited monthly usage allowance.
[cir] The Commission's Gigabit performance tier requires that
bidders commit to provide at least 1 Gigabit per second (Gbps)
downstream and 500 Mbps upstream and offer an unlimited monthly usage
allowance.
[cir] For each of the four tiers, bidders will designate one of two
latency performance levels: (1) Low latency bidders will be required to
meet 95 percent or more of all peak period measurements of network
round trip latency at or below 100 milliseconds (ms), or (2) High
latency bidders will be required to meet 95 percent or more of all peak
period measurements of network round trip latency at or below 750 ms
and, with respect to voice performance, demonstrate a score of four or
higher using the Mean Opinion Score (MOS).
Adopt the same interim service milestones for winning
bidders in the Phase II auction as for price cap carriers that accepted
Phase II model-based support.
Finalize the Commission's decisions regarding areas
eligible for the Phase II competitive bidding process.
Establish a budget for the Phase II competitive bidding
process of $215 million in annual support.
Provide general guidance on auction design, with the
specific details to be determined by the Commission at a future date in
the Auction Procedures Public Notice, after further opportunity for
comment. The Commission will use weights to account for the different
characteristics of service offerings that bidders propose to offer when
ranking bids. The Commission expresses its preference for a multi-round
auction format and for setting the minimum biddable unit as a census
block group containing any eligible census blocks. The Commission
concludes that reserve prices will not exceed support amounts
determined by the Connect America Cost Model (CAM).
Adopt a two-step application process, similar to
Commission spectrum auctions and the Mobility Fund Phase I and Tribal
Mobility Fund Phase I auctions. In the pre-auction short-form
application, a potential bidder will need to establish its baseline
financial and technical capabilities in order to be eligible to bid. In
the long-form review process, winning bidders will be required to
provide additional information regarding their qualifications. They
will be required to
[[Page 44437]]
obtain an acceptable letter of credit and designation as an eligible
telecommunications carrier (ETC) before funding is authorized.
Establish a baseline forfeiture for bidders that default
before funding authorization.
Establish a 180-day post-auction deadline for winning
bidders to submit proof of their ETC designation during long-form
review and forbear from the section 214(e)(5) service area conformance
requirements.
Adopt reporting requirements that will enable the
Commission to monitor recipients' progress in meeting their interim
deployment obligations, and a process by which the Wireline Competition
Bureau (Bureau) or the Wireless Telecommunications Bureau will
authorize the Universal Service Administrative Company (USAC) to draw
on a letter of credit in the event of performance default.
Adopt rules to establish the framework for the Remote
Areas Fund, which will award support through a competitive bidding
process to occur expeditiously after conclusion of the Phase II
auction.
2. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
165. There were no relevant comments filed that specifically
addressed the rules and policies proposed in the USF/ICC Transformation
FNPRM IRFA and the April 2014 Connect America FNPRM, IRFA.
3. Response to Comments by the Chief Counsel for Advocacy of the Small
Business Administration
166. Pursuant to the Small Business Jobs Act of 2010, which amended
the RFA, the Commission is required to respond to any comments filed by
the Chief Counsel of the Small Business Administration (SBA), and to
provide a detailed statement of any change made to the proposed rule(s)
as a result of those comments.
167. The Chief Counsel did not file any comments in response to the
proposed rule(s) in this proceeding.
4. Description and Estimate of the Number of Small Entities to Which
the Rules Will Apply
168. The RFA directs agencies to provide a description of, and
where feasible, an estimate of the number of small entities that may be
affected by the rules adopted herein. The RFA generally defines the
term ``small entity'' as having the same meaning as the terms ``small
business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small-business concern'' under the Small Business
Act. A ``small-business concern'' is one which: (1) Is independently
owned and operated; (2) is not dominant in its field of operation; and
(3) satisfies any additional criteria established by the SBA.
169. Small Businesses. Nationwide, there are a total of
approximately 28.2 million small businesses, according to the SBA.
170. Wired Telecommunications Carriers. The SBA has developed a
small business size standard for Wired Telecommunications Carriers,
which consists of all such companies having 1,500 or fewer employees.
According to Census Bureau data for 2007, there were 3,188 firms in
this category, total, that operated for the entire year. Of this total,
3,144 firms had employment of 999 or fewer employees, and 44 firms had
employment of 1,000 employees or more. Thus, under this size standard,
the majority of firms can be considered small.
171. Local Exchange Carriers (LECs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to local exchange services. The closest applicable size
standard under SBA rules is for Wired Telecommunications Carriers.
Under that size standard, such a business is small if it has 1,500 or
fewer employees. According to Commission data, 1,307 carriers reported
that they were incumbent local exchange service providers. Of these
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and
301 have more than 1,500 employees. Consequently, the Commission
estimates that most providers of local exchange service are small
entities that may be affected by the rules and policies in the Order.
172. Incumbent Local Exchange Carriers (incumbent LECs). Neither
the Commission nor the SBA has developed a size standard for small
businesses specifically applicable to incumbent local exchange
services. The closest applicable size standard under SBA rules is for
Wired Telecommunications Carriers. Under that size standard, such a
business is small if it has 1,500 or fewer employees. According to
Commission data, 1,307 carriers reported that they were incumbent local
exchange service providers. Of these 1,307 carriers, an estimated 1,006
have 1,500 or fewer employees and 301 have more than 1,500 employees.
Consequently, the Commission estimates that most providers of incumbent
local exchange service are small businesses that may be affected by
rules adopted pursuant to the Order.
173. The Commission has included small incumbent LECs in this
present RFA analysis. As noted above, a ``small business'' under the
RFA is one that, inter alia, meets the pertinent small business size
standard (e.g., a telephone communications business having 1,500 or
fewer employees), and ``is not dominant in its field of operation.''
The SBA's Office of Advocacy contends that, for RFA purposes, small
incumbent LECs are not dominant in their field of operation because any
such dominance is not ``national'' in scope. The Commission has
therefore included small incumbent LECs in this RFA analysis, although
it emphasizes that this RFA action has no effect on Commission analyses
and determinations in other, non-RFA, contexts.
174. Competitive Local Exchange Carriers (competitive LECs),
Competitive Access Providers (CAPs), Shared-Tenant Service Providers,
and Other Local Service Providers. Neither the Commission nor the SBA
has developed a small business size standard specifically for these
service providers. The appropriate size standard under SBA rules is for
the category Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 1,442 carriers reported that they were
engaged in the provision of either competitive local exchange services
or competitive access provider services. Of these 1,442 carriers, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than
1,500 employees. In addition, 17 carriers have reported that they are
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500
or fewer employees. In addition, 72 carriers have reported that they
are Other Local Service Providers. Of the 72, seventy have 1,500 or
fewer employees and two have more than 1,500 employees. Consequently,
the Commission estimates that most providers of competitive local
exchange service, competitive access providers, Shared-Tenant Service
Providers, and Other Local Service Providers are small entities that
may be affected by rules adopted pursuant to the Order.
175. Interexchange Carriers (IXCs). Neither the Commission nor the
SBA has developed a size standard for small businesses specifically
applicable to interexchange services. The closest applicable size
standard under SBA rules is for Wired Telecommunications Carriers.
Under that size standard, such
[[Page 44438]]
a business is small if it has 1,500 or fewer employees. According to
Commission data, 359 companies reported that their primary
telecommunications service activity was the provision of interexchange
services. Of these 359 companies, an estimated 317 have 1,500 or fewer
employees and 42 have more than 1,500 employees. Consequently, the
Commission estimates that the majority of interexchange service
providers are small entities that may be affected by rules adopted
pursuant to the Order.
176. Prepaid Calling Card Providers. Neither the Commission nor the
SBA has developed a small business size standard specifically for
prepaid calling card providers. The appropriate size standard under SBA
rules is for the category Telecommunications Resellers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 193 carriers have reported that they are
engaged in the provision of prepaid calling cards. Of these, the
Commission estimates that all 193 have 1,500 or fewer employees and
none have more than 1,500 employees. Consequently, the Commission
estimates that the majority of prepaid calling card providers are small
entities that may be affected by rules adopted pursuant to the Order.
177. Local Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 213 carriers have reported
that they are engaged in the provision of local resale services. Of
these, an estimated 211 have 1,500 or fewer employees and two have more
than 1,500 employees. Consequently, the Commission estimates that the
majority of local resellers are small entities that may be affected by
rules adopted pursuant to the Order.
178. Toll Resellers. The SBA has developed a small business size
standard for the category of Telecommunications Resellers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 881 carriers have reported
that they are engaged in the provision of toll resale services. Of
these, an estimated 857 have 1,500 or fewer employees and 24 have more
than 1,500 employees. Consequently, the Commission estimates that the
majority of toll resellers are small entities that may be affected by
rules adopted pursuant to the Order.
179. Other Toll Carriers. Neither the Commission nor the SBA has
developed a size standard for small businesses specifically applicable
to Other Toll Carriers. This category includes toll carriers that do
not fall within the categories of interexchange carriers, operator
service providers, prepaid calling card providers, satellite service
carriers, or toll resellers. The closest applicable size standard under
SBA rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 284 companies reported that their primary
telecommunications service activity was the provision of other toll
carriage. Of these, an estimated 279 have 1,500 or fewer employees and
five have more than 1,500 employees. Consequently, the Commission
estimates that most Other Toll Carriers are small entities that may be
affected by the rules and policies adopted pursuant to the Order.
180. 800 and 800-Like Service Subscribers. Neither the Commission
nor the SBA has developed a small business size standard specifically
for 800 and 800-like service (toll free) subscribers. The appropriate
size standard under SBA rules is for the category Telecommunications
Resellers. Under that size standard, such a business is small if it has
1,500 or fewer employees. The most reliable source of information
regarding the number of these service subscribers appears to be data
the Commission collects on the 800, 888, 877, and 866 numbers in use.
According to the Commission's data, as of September 2009, the number of
800 numbers assigned was 7,860,000; the number of 888 numbers assigned
was 5,588,687; the number of 877 numbers assigned was 4,721,866; and
the number of 866 numbers assigned was 7,867,736. The Commission does
not have data specifying the number of these subscribers that are not
independently owned and operated or have more than 1,500 employees, and
thus are unable at this time to estimate with greater precision the
number of toll free subscribers that would qualify as small businesses
under the SBA size standard. Consequently, the Commission estimates
that there are 7,860,000 or fewer small entity 800 subscribers;
5,588,687 or fewer small entity 888 subscribers; 4,721,866 or fewer
small entity 877 subscribers; and 7,867,736 or fewer small entity 866
subscribers.
181. Wireless Telecommunications Carriers (Except Satellite). Since
2007, the SBA has recognized wireless firms within this new, broad,
economic census category. Prior to that time, such firms were within
the now-superseded categories of Paging and Cellular and Other Wireless
Telecommunications. Under the present and prior categories, the SBA has
deemed a wireless business to be small if it has 1,500 or fewer
employees. For this category, census data for 2007 show that there were
1,383 firms that operated for the entire year. Of this total, 1,368
firms had employment of 999 or fewer employees and 15 had employment of
1000 employees or more. Similarly, according to Commission data, 413
carriers reported that they were engaged in the provision of wireless
telephony, including cellular service, Personal Communications Service
(PCS), and Specialized Mobile Radio (SMR) Telephony services. Of these,
an estimated 261 have 1,500 or fewer employees and 152 have more than
1,500 employees. Consequently, the Commission estimates that
approximately half or more of these firms can be considered small.
Thus, using available data, the Commission estimates that the majority
of wireless firms can be considered small.
182. Broadband Personal Communications Service. The broadband
personal communications service (PCS) spectrum is divided into six
frequency blocks designated A through F, and the Commission has held
auctions for each block. The Commission defined ``small entity'' for
Blocks C and F as an entity that has average gross revenues of $40
million or less in the three previous calendar years. For Block F, an
additional classification for ``very small business'' was added and is
defined as an entity that, together with its affiliates, has average
gross revenues of not more than $15 million for the preceding three
calendar years. These standards defining ``small entity'' in the
context of broadband PCS auctions have been approved by the SBA. No
small businesses, within the SBA-approved small business size standards
bid successfully for licenses in Blocks A and B. There were 90 winning
bidders that qualified as small entities in the Block C auctions. A
total of 93 small and very small business bidders won approximately 40
percent of the 1,479 licenses for Blocks D, E, and F. In 1999, the
Commission re-auctioned 347 C, E, and F Block licenses. There were 48
small business winning bidders. In 2001, the Commission completed the
auction of 422 C and F Broadband PCS licenses in Auction 35. Of the 35
winning bidders in this auction, 29 qualified as ``small'' or ``very
small'' businesses. Subsequent events,
[[Page 44439]]
concerning Auction 35, including judicial and agency determinations,
resulted in a total of 163 C and F Block licenses being available for
grant. In 2005, the Commission completed an auction of 188 C block
licenses and 21 F block licenses in Auction 58. There were 24 winning
bidders for 217 licenses. Of the 24 winning bidders, 16 claimed small
business status and won 156 licenses. In 2007, the Commission completed
an auction of 33 licenses in the A, C, and F Blocks in Auction 71. Of
the 14 winning bidders, six were designated entities. In 2008, the
Commission completed an auction of 20 Broadband PCS licenses in the C,
D, E and F block licenses in Auction 78.
183. Advanced Wireless Services. In 2008, the Commission conducted
the auction of Advanced Wireless Services (``AWS'') licenses. This
auction, which as designated as Auction 78, offered 35 licenses in the
AWS 1710-1755 MHz and 2110-2155 MHz bands (AWS-1). The AWS-1 licenses
were licenses for which there were no winning bids in Auction 66. That
same year, the Commission completed Auction 78. A bidder with
attributed average annual gross revenues that exceeded $15 million and
did not exceed $40 million for the preceding three years (``small
business'') received a 15 percent discount on its winning bid. A bidder
with attributed average annual gross revenues that did not exceed $15
million for the preceding three years (``very small business'')
received a 25 percent discount on its winning bid. A bidder that had
combined total assets of less than $500 million and combined gross
revenues of less than $125 million in each of the last two years
qualified for entrepreneur status. Four winning bidders that identified
themselves as very small businesses won 17 licenses. Three of the
winning bidders that identified themselves as a small business won five
licenses. Additionally, one other winning bidder that qualified for
entrepreneur status won 2 licenses.
184. Narrowband Personal Communications Services. In 1994, the
Commission conducted an auction for Narrowband PCS licenses. A second
auction was also conducted later in 1994. For purposes of the first two
Narrowband PCS auctions, ``small businesses'' were entities with
average gross revenues for the prior three calendar years of $40
million or less. Through these auctions, the Commission awarded a total
of 41 licenses, 11 of which were obtained by four small businesses. To
ensure meaningful participation by small business entities in future
auctions, the Commission adopted a two-tiered small business size
standard in the Narrowband PCS Second Report and Order, 65 FR 35843,
June 6, 2000. A ``small business'' is an entity that, together with
affiliates and controlling interests, has average gross revenues for
the three preceding years of not more than $40 million. A ``very small
business'' is an entity that, together with affiliates and controlling
interests, has average gross revenues for the three preceding years of
not more than $15 million. The SBA has approved these small business
size standards. A third auction was conducted in 2001. Here, five
bidders won 317 (Metropolitan Trading Areas and nationwide) licenses.
Three of these claimed status as a small or very small entity and won
311 licenses.
185. Paging (Private and Common Carrier). In the Paging Third
Report and Order, 64 FR 33762, June 24, 1999, the Commission developed
a small business size standard for ``small businesses'' and ``very
small businesses'' for purposes of determining their eligibility for
special provisions such as bidding credits and installment payments. A
``small business'' is an entity that, together with its affiliates and
controlling principals, has average gross revenues not exceeding $15
million for the preceding three years. Additionally, a ``very small
business'' is an entity that, together with its affiliates and
controlling principals, has average gross revenues that are not more
than $3 million for the preceding three years. The SBA has approved
these small business size standards. According to Commission data, 291
carriers have reported that they are engaged in Paging or Messaging
Service. Of these, an estimated 289 have 1,500 or fewer employees, and
two have more than 1,500 employees. Consequently, the Commission
estimates that the majority of paging providers are small entities that
may be affected by the Commission's action. An auction of Metropolitan
Economic Area licenses commenced on February 24, 2000, and closed on
March 2, 2000. Of the 2,499 licenses auctioned, 985 were sold. Fifty-
seven companies claiming small business status won 440 licenses. A
subsequent auction of MEA and Economic Area (``EA'') licenses was held
in the year 2001. Of the 15,514 licenses auctioned, 5,323 were sold.
One hundred thirty-two companies claiming small business status
purchased 3,724 licenses. A third auction, consisting of 8,874 licenses
in each of 175 EAs and 1,328 licenses in all but three of the 51 MEAs,
was held in 2003. Seventy-seven bidders claiming small or very small
business status won 2,093 licenses. A fourth auction, consisting of
9,603 lower and upper paging band licenses was held in the year 2010.
Twenty-nine bidders claiming small or very small business status won
3,016 licenses.
186. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service
has both Phase I and Phase II licenses. Phase I licensing was conducted
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized
to operate in the 220 MHz band. The Commission has not developed a
small business size standard for small entities specifically applicable
to such incumbent 220 MHz Phase I licensees. To estimate the number of
such licensees that are small businesses, the Commission applies the
small business size standard under the SBA rules applicable to Wireless
Telecommunications Carriers (except Satellite). Under this category,
the SBA deems a wireless business to be small if it has 1,500 or fewer
employees. The Commission estimates that nearly all such licensees are
small businesses under the SBA's small business size standard that may
be affected by rules adopted pursuant to the Order.
187. 220 MHz Radio Service--Phase II Licensees. The 220 MHz service
has both Phase I and Phase II licenses. The Phase II 220 MHz service is
subject to spectrum auctions. In the 220 MHz Third Report and Order, 62
FR 15978, April 3, 1997, the Commission adopted a small business size
standard for ``small'' and ``very small'' businesses for purposes of
determining their eligibility for special provisions such as bidding
credits and installment payments. This small business size standard
indicates that a ``small business'' is an entity that, together with
its affiliates and controlling principals, has average gross revenues
not exceeding $15 million for the preceding three years. A ``very small
business'' is an entity that, together with its affiliates and
controlling principals, has average gross revenues that do not exceed
$3 million for the preceding three years. The SBA has approved these
small business size standards. Auctions of Phase II licenses commenced
on September 15, 1998, and closed on October 22, 1998. In the first
auction, 908 licenses were auctioned in three different-sized
geographic areas: Three nationwide licenses, 30 Regional Economic Area
Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908
licenses auctioned, 693 were sold. Thirty-nine small businesses won
licenses in the first 220 MHz auction. The second auction included 225
[[Page 44440]]
licenses: 216 EA Licenses and 9 EAG licenses. Fourteen companies
claiming small business status won 158 licenses.
188. Specialized Mobile Radio. The Commission awards small business
bidding credits in auctions for Specialized Mobile Radio (``SMR'')
geographic area licenses in the 800 MHz and 900 MHz bands to entities
that had revenues of no more than $15 million in each of the three
previous calendar years. The Commission awards very small business
bidding credits to entities that had revenues of no more than $3
million in each of the three previous calendar years. The SBA has
approved these small business size standards for the 800 MHz and 900
MHz SMR Services. The Commission has held auctions for geographic area
licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction was
completed in 1996. Sixty bidders claiming that they qualified as small
businesses under the $15 million size standard won 263 geographic area
licenses in the 900 MHz SMR band. The 800 MHz SMR auction for the upper
200 channels was conducted in 1997. Ten bidders claiming that they
qualified as small businesses under the $15 million size standard won
38 geographic area licenses for the upper 200 channels in the 800 MHz
SMR band. A second auction for the 800 MHz band was conducted in 2002
and included 23 BEA licenses. One bidder claiming small business status
won five licenses.
189. The auction of the 1,053 800 MHz SMR geographic area licenses
for the General Category channels was conducted in 2000. Eleven bidders
won 108 geographic area licenses for the General Category channels in
the 800 MHz SMR band qualified as small businesses under the $15
million size standard. In an auction completed in 2000, a total of
2,800 Economic Area licenses in the lower 80 channels of the 800 MHz
SMR service were awarded. Of the 22 winning bidders, 19 claimed small
business status and won 129 licenses. Thus, combining all three
auctions, 40 winning bidders for geographic licenses in the 800 MHz SMR
band claimed status as small business.
190. In addition, there are numerous incumbent site-by-site SMR
licensees and licensees with extended implementation authorizations in
the 800 and 900 MHz bands. The Commission does not know how many firms
provide 800 MHz or 900 MHz geographic area SMR pursuant to extended
implementation authorizations, nor how many of these providers have
annual revenues of no more than $15 million. One firm has over $15
million in revenues. In addition, the Commission does not know how many
of these firms have 1,500 or fewer employees. The Commission assumes,
for purposes of this analysis, that all of the remaining existing
extended implementation authorizations are held by small entities, as
that small business size standard is approved by the SBA.
191. Broadband Radio Service and Educational Broadband Service.
Broadband Radio Service systems, previously referred to as Multipoint
Distribution Service (``MDS'') and Multichannel Multipoint Distribution
Service (``MMDS'') systems, and ``wireless cable,'' transmit video
programming to subscribers and provide two-way high speed data
operations using the microwave frequencies of the Broadband Radio
Service (``BRS'') and Educational Broadband Service (``EBS'')
(previously referred to as the Instructional Television Fixed Service
(``ITFS'')). In connection with the 1996 BRS auction, the Commission
established a small business size standard as an entity that had annual
average gross revenues of no more than $40 million in the previous
three calendar years. The BRS auctions resulted in 67 successful
bidders obtaining licensing opportunities for 493 Basic Trading Areas
(``BTAs''). Of the 67 auction winners, 61 met the definition of a small
business. BRS also includes licensees of stations authorized prior to
the auction. At this time, the Commission estimates that of the 61
small business BRS auction winners, 48 remain small business licensees.
In addition to the 48 small businesses that hold BTA authorizations,
there are approximately 392 incumbent BRS licensees that are considered
small entities. After adding the number of small business auction
licensees to the number of incumbent licensees not already counted, the
Commission finds that there are currently approximately 440 BRS
licensees that are defined as small businesses under either the SBA or
the Commission's rules. The Commission has adopted three levels of
bidding credits for BRS: (i) A bidder with attributed average annual
gross revenues that exceed $15 million and do not exceed $40 million
for the preceding three years (small business) is eligible to receive a
15 percent discount on its winning bid; (ii) a bidder with attributed
average annual gross revenues that exceed $3 million and do not exceed
$15 million for the preceding three years (very small business) is
eligible to receive a 25 percent discount on its winning bid; and (iii)
a bidder with attributed average annual gross revenues that do not
exceed $3 million for the preceding three years (entrepreneur) is
eligible to receive a 35 percent discount on its winning bid. In 2009,
the Commission conducted Auction 86, which offered 78 BRS licenses.
Auction 86 concluded with 10 bidders winning 61 licenses. Of the ten,
two bidders claimed small business status and won 4 licenses; one
bidder claimed very small business status and won three licenses; and
two bidders claimed entrepreneur status and won six licenses.
192. In addition, the SBA's Cable Television Distribution Services
small business size standard is applicable to EBS. There are presently
2,032 EBS licensees. All but 100 of these licenses are held by
educational institutions. Educational institutions are included in this
analysis as small entities. Thus, the Commission estimates that at
least 1,932 licensees are small businesses. Since 2007, Cable
Television Distribution Services have been defined within the broad
economic census category of Wired Telecommunications Carriers; that
category is defined as follows: ``This industry comprises
establishments primarily engaged in operating and/or providing access
to transmission facilities and infrastructure that they own and/or
lease for the transmission of voice, data, text, sound, and video using
wired telecommunications networks. Transmission facilities may be based
on a single technology or a combination of technologies.'' The SBA
defines a small business size standard for this category as any such
firms having 1,500 or fewer employees. The SBA has developed a small
business size standard for this category, which is: All such firms
having 1,500 or fewer employees. According to Census Bureau data for
2007, there were a total of 955 firms in this previous category that
operated for the entire year. Of this total, 939 firms had employment
of 999 or fewer employees, and 16 firms had employment of 1000
employees or more. Thus, under this size standard, the majority of
firms can be considered small and may be affected by rules adopted
pursuant to the Order.
193. Lower 700 MHz Band Licenses. The Commission previously adopted
criteria for defining three groups of small businesses for purposes of
determining their eligibility for special provisions such as bidding
credits. The Commission defined a ``small business'' as an entity that,
together with its affiliates and controlling principals, has average
gross revenues not exceeding $40 million for the preceding three
[[Page 44441]]
years. A ``very small business'' is defined as an entity that, together
with its affiliates and controlling principals, has average gross
revenues that are not more than $15 million for the preceding three
years. Additionally, the Lower 700 MHz Band had a third category of
small business status for Metropolitan/Rural Service Area (``MSA/RSA'')
licenses, identified as ``entrepreneur'' and defined as an entity that,
together with its affiliates and controlling principals, has average
gross revenues that are not more than $3 million for the preceding
three years. The SBA approved these small size standards. The
Commission conducted an auction in 2002 of 740 Lower 700 MHz Band
licenses (one license in each of the 734 MSAs/RSAs and one license in
each of the six Economic Area Groupings (EAGs)). Of the 740 licenses
available for auction, 484 licenses were sold to 102 winning bidders.
Seventy-two of the winning bidders claimed small business, very small
business or entrepreneur status and won a total of 329 licenses. The
Commission conducted a second Lower 700 MHz Band auction in 2003 that
included 256 licenses: 5 EAG licenses and 476 Cellular Market Area
licenses. Seventeen winning bidders claimed small or very small
business status and won 60 licenses, and nine winning bidders claimed
entrepreneur status and won 154 licenses. In 2005, the Commission
completed an auction of 5 licenses in the Lower 700 MHz Band,
designated Auction 60. There were three winning bidders for five
licenses. All three winning bidders claimed small business status.
194. In 2007, the Commission reexamined its rules governing the 700
MHz band in the 700 MHz Second Report and Order, 72 FR 48814, August
24, 2007. The 700 MHz Second Report and Order revised the band plan for
the commercial (including Guard Band) and public safety spectrum,
adopted services rules, including stringent build-out requirements, an
open platform requirement on the C Block, and a requirement on the D
Block licensee to construct and operate a nationwide, interoperable
wireless broadband network for public safety users. An auction of A, B
and E block licenses in the Lower 700 MHz band was held in 2008. Twenty
winning bidders claimed small business status (those with attributable
average annual gross revenues that exceed $15 million and do not exceed
$40 million for the preceding three years). Thirty-three winning
bidders claimed very small business status (those with attributable
average annual gross revenues that do not exceed $15 million for the
preceding three years). In 2011, the Commission conducted Auction 92,
which offered 16 Lower 700 MHz band licenses that had been made
available in Auction 73 but either remained unsold or were licenses on
which a winning bidder defaulted. Two of the seven winning bidders in
Auction 92 claimed very small business status, winning a total of four
licenses.
195. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and
Order, the Commission revised its rules regarding Upper 700 MHz band
licenses. In 2008, the Commission conducted Auction 73 in which C and D
block licenses in the Upper 700 MHz band were available. Three winning
bidders claimed very small business status (those with attributable
average annual gross revenues that do not exceed $15 million for the
preceding three years).
196. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order,
65 FR 17594, April 4, 2000, the Commission adopted a small business
size standard for ``small businesses'' and ``very small businesses''
for purposes of determining their eligibility for special provisions
such as bidding credits and installment payments. A ``small business''
is an entity that, together with its affiliates and controlling
principals, has average gross revenues not exceeding $40 million for
the preceding three years. Additionally, a ``very small business'' is
an entity that, together with its affiliates and controlling
principals, has average gross revenues that are not more than $15
million for the preceding three years. An auction of 52 Major Economic
Area (MEA) licenses commenced on September 6, 2000, and closed on
September 21, 2000. Of the 104 licenses auctioned, 96 licenses were
sold to nine bidders. Five of these bidders were small businesses that
won a total of 26 licenses. A second auction of 700 MHz Guard Band
licenses commenced on February 13, 2001 and closed on February 21,
2001. All eight of the licenses auctioned were sold to three bidders.
One of these bidders was a small business that won a total of two
licenses.
197. Cellular Radiotelephone Service. Auction 77 was held to
resolve one group of mutually exclusive applications for Cellular
Radiotelephone Service licenses for unserved areas in New Mexico.
Bidding credits for designated entities were not available in Auction
77. In 2008, the Commission completed the closed auction of one
unserved service area in the Cellular Radiotelephone Service,
designated as Auction 77. Auction 77 concluded with one provisionally
winning bid for the unserved area totaling $25,002.
198. Private Land Mobile Radio (``PLMR''). PLMR systems serve an
essential role in a range of industrial, business, land transportation,
and public safety activities. These radios are used by companies of all
sizes operating in all U.S. business categories, and are often used in
support of the licensee's primary (non-telecommunications) business
operations. For the purpose of determining whether a licensee of a PLMR
system is a small business as defined by the SBA, the Commission uses
the broad census category, Wireless Telecommunications Carriers (except
Satellite). This definition provides that a small entity is any such
entity employing no more than 1,500 persons. The Commission does not
require PLMR licensees to disclose information about number of
employees, so the Commission does not have information that could be
used to determine how many PLMR licensees constitute small entities
under this definition. The Commission notes that PLMR licensees
generally use the licensed facilities in support of other business
activities, and therefore, it would also be helpful to assess PLMR
licensees under the standards applied to the particular industry
subsector to which the licensee belongs.
199. As of March 2010, there were 424,162 PLMR licensees operating
921,909 transmitters in the PLMR bands below 512 MHz. The Commission
notes that any entity engaged in a commercial activity is eligible to
hold a PLMR license, and that any revised rules in this context could
therefore potentially impact small entities covering a great variety of
industries.
200. Rural Radiotelephone Service. The Commission has not adopted a
size standard for small businesses specific to the Rural Radiotelephone
Service. A significant subset of the Rural Radiotelephone Service is
the Basic Exchange Telephone Radio System (BETRS). In the present
context, the Commission will use the SBA's small business size standard
applicable to Wireless Telecommunications Carriers (except Satellite),
i.e., an entity employing no more than 1,500 persons. There are
approximately 1,000 licensees in the Rural Radiotelephone Service, and
the Commission estimates that there are 1,000 or fewer small entity
licensees in the Rural Radiotelephone Service that may be affected by
the rules and policies issued herein.
201. Air-Ground Radiotelephone Service. The Commission has not
adopted a small business size standard specific to the Air-Ground
[[Page 44442]]
Radiotelephone Service. The Commission will use SBA's small business
size standard applicable to Wireless Telecommunications Carriers
(except Satellite), i.e., an entity employing no more than 1,500
persons. There are approximately 100 licensees in the Air-Ground
Radiotelephone Service, and the Commission estimates that almost all of
them qualify as small under the SBA small business size standard and
may be affected by rules adopted pursuant to the Order.
202. Aviation and Marine Radio Services. Small businesses in the
aviation and marine radio services use a very high frequency (VHF)
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator
transmitter. The Commission has not developed a small business size
standard specifically applicable to these small businesses. For
purposes of this analysis, the Commission uses the SBA small business
size standard for the category Wireless Telecommunications Carriers
(except Satellite), which is 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Most applicants for recreational licenses are individuals.
Approximately 581,000 ship station licensees and 131,000 aircraft
station licensees operate domestically and are not subject to the radio
carriage requirements of any statute or treaty. For purposes of the
Commission's evaluations in this analysis, the Commission estimates
that there are up to approximately 712,000 licensees that are small
businesses (or individuals) under the SBA standard. In addition,
between December 3, 1998 and December 14, 1998, the Commission held an
auction of 42 VHF Public Coast licenses in the 157.1875-157.4500 MHz
(ship transmit) and 161.775-162.0125 MHz (coast transmit) bands. For
purposes of the auction, the Commission defined a ``small'' business as
an entity that, together with controlling interests and affiliates, has
average gross revenues for the preceding three years not to exceed $15
million dollars. In addition, a ``very small'' business is one that,
together with controlling interests and affiliates, has average gross
revenues for the preceding three years not to exceed $3 million
dollars. There are approximately 10,672 licensees in the Marine Coast
Service, and the Commission estimates that almost all of them qualify
as ``small'' businesses under the above special small business size
standards and may be affected by rules adopted pursuant to the Order.
203. Fixed Microwave Services. Fixed microwave services include
common carrier, private operational-fixed, and broadcast auxiliary
radio services. At present, there are approximately 22,015 common
carrier fixed licensees and 61,670 private operational-fixed licensees
and broadcast auxiliary radio licensees in the microwave services. The
Commission has not created a size standard for a small business
specifically with respect to fixed microwave services. For purposes of
this analysis, the Commission uses the SBA small business size standard
for Wireless Telecommunications Carriers (except Satellite), which is
1,500 or fewer employees. The Commission does not have data specifying
the number of these licensees that have more than 1,500 employees, and
thus is unable at this time to estimate with greater precision the
number of fixed microwave service licensees that would qualify as small
business concerns under the SBA's small business size standard.
Consequently, the Commission estimates that there are up to 22,015
common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the
microwave services that may be small and may be affected by the rules
and policies adopted herein. The Commission notes, however, that the
common carrier microwave fixed licensee category includes some large
entities.
204. Offshore Radiotelephone Service. This service operates on
several UHF television broadcast channels that are not used for
television broadcasting in the coastal areas of states bordering the
Gulf of Mexico. There are presently approximately 55 licensees in this
service. The Commission is unable to estimate at this time the number
of licensees that would qualify as small under the SBA's small business
size standard for the category of Wireless Telecommunications Carriers
(except Satellite). Under that SBA small business size standard, a
business is small if it has 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Thus, under this category and the associated small business size
standard, the majority of firms can be considered small.
205. 39 GHz Service. The Commission created a special small
business size standard for 39 GHz licenses--an entity that has average
gross revenues of $40 million or less in the three previous calendar
years. An additional size standard for ``very small business'' is: An
entity that, together with affiliates, has average gross revenues of
not more than $15 million for the preceding three calendar years. The
SBA has approved these small business size standards. The auction of
the 2,173 39 GHz licenses began on April 12, 2000 and closed on May 8,
2000. The 18 bidders who claimed small business status won 849
licenses. Consequently, the Commission estimates that 18 or fewer 39
GHz licensees are small entities that may be affected by rules adopted
pursuant to the Order.
206. Local Multipoint Distribution Service. Local Multipoint
Distribution Service (LMDS) is a fixed broadband point-to-multipoint
microwave service that provides for two-way video telecommunications.
The auction of the 986 LMDS licenses began and closed in 1998. The
Commission established a small business size standard for LMDS licenses
as an entity that has average gross revenues of less than $40 million
in the three previous calendar years. An additional small business size
standard for ``very small business'' was added as an entity that,
together with its affiliates, has average gross revenues of not more
than $15 million for the preceding three calendar years. The SBA has
approved these small business size standards in the context of LMDS
auctions. There were 93 winning bidders that qualified as small
entities in the LMDS auctions. A total of 93 small and very small
business bidders won approximately 277 A Block licenses and 387 B Block
licenses. In 1999, the Commission re-auctioned 161 licenses; there were
32 small and very small businesses winning that won 119 licenses.
207. 218-219 MHz Service. The first auction of 218-219 MHz spectrum
resulted in 170 entities winning licenses for 594 Metropolitan
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by
entities qualifying as a small business. For that auction, the small
business size standard was an entity that, together with its
affiliates, has no more than a $6 million net worth and, after federal
income taxes (excluding any carry over losses), has no more than $2
million in annual profits each year for the previous two years. In the
218-219 MHz Report and Order and Memorandum Opinion and Order, 64 FR
59656, November 3, 1999, the Commission established a small business
size standard for a ``small
[[Page 44443]]
business'' as an entity that, together with its affiliates and persons
or entities that hold interests in such an entity and their affiliates,
has average annual gross revenues not to exceed $15 million for the
preceding three years. A ``very small business'' is defined as an
entity that, together with its affiliates and persons or entities that
hold interests in such an entity and its affiliates, has average annual
gross revenues not to exceed $3 million for the preceding three years.
These size standards will be used in future auctions of 218-219 MHz
spectrum.
208. 2.3 GHz Wireless Communications Services. This service can be
used for fixed, mobile, radiolocation, and digital audio broadcasting
satellite uses. The Commission defined ``small business'' for the
wireless communications services (``WCS'') auction as an entity with
average gross revenues of $40 million for each of the three preceding
years, and a ``very small business'' as an entity with average gross
revenues of $15 million for each of the three preceding years. The SBA
has approved these definitions. The Commission auctioned geographic
area licenses in the WCS service. In the auction, which was conducted
in 1997, there were seven bidders that won 31 licenses that qualified
as very small business entities, and one bidder that won one license
that qualified as a small business entity.
209. 1670-1675 MHz Band. An auction for one license in the 1670-
1675 MHz band was conducted in 2003. The Commission defined a ``small
business'' as an entity with attributable average annual gross revenues
of not more than $40 million for the preceding three years and thus
would be eligible for a 15 percent discount on its winning bid for the
1670-1675 MHz band license. Further, the Commission defined a ``very
small business'' as an entity with attributable average annual gross
revenues of not more than $15 million for the preceding three years and
thus would be eligible to receive a 25 percent discount on its winning
bid for the 1670-1675 MHz band license. One license was awarded. The
winning bidder was not a small entity.
210. 3650-3700 MHz band. In March 2005, the Commission released a
Report and Order and Memorandum Opinion and Order that provides for
nationwide, non-exclusive licensing of terrestrial operations,
utilizing contention-based technologies, in the 3650 MHz band (i.e.,
3650-3700 MHz). As of April 2010, more than 1270 licenses have been
granted and more than 7433 sites have been registered. The Commission
has not developed a definition of small entities applicable to 3650-
3700 MHz band nationwide, non-exclusive licensees. However, the
Commission estimates that the majority of these licensees are Internet
Access Service Providers (ISPs) and that most of those licensees are
small businesses.
211. 24 GHz--Incumbent Licensees. This analysis may affect
incumbent licensees who were relocated to the 24 GHz band from the 18
GHz band, and applicants who wish to provide services in the 24 GHz
band. For this service, the Commission uses the SBA small business size
standard for the category ``Wireless Telecommunications Carriers
(except satellite),'' which is 1,500 or fewer employees. To gauge small
business prevalence for these cable services the Commission must,
however, use the most current census data. Census data for 2007, which
supersede data contained in the 2002 Census, show that there were 1,383
firms that operated that year. Of those 1,383, 1,368 had fewer than 100
employees, and 15 firms had more than 100 employees. Thus under this
category and the associated small business size standard, the majority
of firms can be considered small. The Commission notes that the Census'
use of the classifications ``firms'' does not track the number of
``licenses''. The Commission believes that there are only two licensees
in the 24 GHz band that were relocated from the 18 GHz band, Teligent
and TRW, Inc. It is the Commission's understanding that Teligent and
its related companies have less than 1,500 employees, though this may
change in the future. TRW is not a small entity. Thus, only one
incumbent licensee in the 24 GHz band is a small business entity.
212. 24 GHz--Future Licensees. With respect to new applicants in
the 24 GHz band, the size standard for ``small business'' is an entity
that, together with controlling interests and affiliates, has average
annual gross revenues for the three preceding years not in excess of
$15 million. ``Very small business'' in the 24 GHz band is an entity
that, together with controlling interests and affiliates, has average
gross revenues not exceeding $3 million for the preceding three years.
The SBA has approved these small business size standards. These size
standards will apply to a future 24 GHz license auction, if held.
213. Satellite Telecommunications. Since 2007, the SBA has
recognized satellite firms within this revised category, with a small
business size standard of $15 million. The most current Census Bureau
data are from the economic census of 2007, and the Commission will use
those figures to gauge the prevalence of small businesses in this
category. Those size standards are for the two census categories of
``Satellite Telecommunications'' and ``Other Telecommunications.''
Under the ``Satellite Telecommunications'' category, a business is
considered small if it had $15 million or less in average annual
receipts. Under the ``Other Telecommunications'' category, a business
is considered small if it had $25 million or less in average annual
receipts.
214. The first category of Satellite Telecommunications ``comprises
establishments primarily engaged in providing point-to-point
telecommunications services to other establishments in the
telecommunications and broadcasting industries by forwarding and
receiving communications signals via a system of satellites or
reselling satellite telecommunications.'' For this category, Census
Bureau data for 2007 show that there were a total of 512 firms that
operated for the entire year. Of this total, 464 firms had annual
receipts of under $10 million, and 18 firms had receipts of $10 million
to $24,999,999. Consequently, the Commission estimates that the
majority of Satellite Telecommunications firms are small entities that
might be affected by rules adopted pursuant to the Order.
215. The second category of Other Telecommunications ``primarily
engaged in providing specialized telecommunications services, such as
satellite tracking, communications telemetry, and radar station
operation. This industry also includes establishments primarily engaged
in providing satellite terminal stations and associated facilities
connected with one or more terrestrial systems and capable of
transmitting telecommunications to, and receiving telecommunications
from, satellite systems. Establishments providing Internet services or
voice over Internet protocol (VoIP) services via client-supplied
telecommunications connections are also included in this industry.''
For this category, Census Bureau data for 2007 show that there were a
total of 2,383 firms that operated for the entire year. Of this total,
2,346 firms had annual receipts of under $25 million. Consequently, the
Commission estimates that the majority of Other Telecommunications
firms are small entities that might be affected by its action.
216. Cable and Other Program Distribution. Since 2007, these
services have been defined within the broad economic census category of
Wired Telecommunications Carriers; that
[[Page 44444]]
category is defined as follows: ``This industry comprises
establishments primarily engaged in operating and/or providing access
to transmission facilities and infrastructure that they own and/or
lease for the transmission of voice, data, text, sound, and video using
wired telecommunications networks. Transmission facilities may be based
on a single technology or a combination of technologies.'' The SBA has
developed a small business size standard for this category, which is:
All such firms having 1,500 or fewer employees. According to Census
Bureau data for 2007, there were a total of 955 firms in this previous
category that operated for the entire year. Of this total, 939 firms
had employment of 999 or fewer employees, and 16 firms had employment
of 1,000 employees or more. Thus, under this size standard, the
majority of firms can be considered small and may be affected by rules
adopted pursuant to the Order.
217. Cable Companies and Systems. The Commission has developed its
own small business size standards, for the purpose of cable rate
regulation. Under the Commission's rules, a ``small cable company'' is
one serving 400,000 or fewer subscribers, nationwide. Industry data
indicate that, of 1,076 cable operators nationwide, all but eleven are
small under this size standard. In addition, under the Commission's
rules, a ``small system'' is a cable system serving 15,000 or fewer
subscribers. Industry data indicate that, of 7,208 systems nationwide,
6,139 systems have under 10,000 subscribers, and an additional 379
systems have 10,000-19,999 subscribers. Thus, under this second size
standard, most cable systems are small and may be affected by rules
adopted pursuant to the Order.
218. Cable System Operators. The Act also contains a size standard
for small cable system operators, which is ``a cable operator that,
directly or through an affiliate, serves in the aggregate fewer than 1
percent of all subscribers in the United States and is not affiliated
with any entity or entities whose gross annual revenues in the
aggregate exceed $250,000,000.'' The Commission has determined that an
operator serving fewer than 677,000 subscribers shall be deemed a small
operator, if its annual revenues, when combined with the total annual
revenues of all its affiliates, do not exceed $250 million in the
aggregate. Industry data indicate that, of 1,076 cable operators
nationwide, all but 10 are small under this size standard. The
Commission notes that it neither requests nor collects information on
whether cable system operators are affiliated with entities whose gross
annual revenues exceed $250 million, and therefore it is unable to
estimate more accurately the number of cable system operators that
would qualify as small under this size standard.
219. Open Video Services. The open video system (``OVS'') framework
was established in 1996, and is one of four statutorily recognized
options for the provision of video programming services by local
exchange carriers. The OVS framework provides opportunities for the
distribution of video programming other than through cable systems.
Because OVS operators provide subscription services, OVS falls within
the SBA small business size standard covering cable services, which is
``Wired Telecommunications Carriers.'' The SBA has developed a small
business size standard for this category, which is: All such firms
having 1,500 or fewer employees. According to Census Bureau data for
2007, there were a total of 955 firms in this previous category that
operated for the entire year. Of this total, 939 firms had employment
of 999 or fewer employees, and 16 firms had employment of 1,000
employees or more. Thus, under this second size standard, most cable
systems are small and may be affected by rules adopted pursuant to the
Order. In addition, the Commission notes that it has certified some OVS
operators, with some now providing service. Broadband service providers
(``BSPs'') are currently the only significant holders of OVS
certifications or local OVS franchises. The Commission does not have
financial or employment information regarding the entities authorized
to provide OVS, some of which may not yet be operational. Thus, again,
at least some of the OVS operators may qualify as small entities.
220. Internet Service Providers. Since 2007, these services have
been defined within the broad economic census category of Wired
Telecommunications Carriers; that category is defined as follows:
``This industry comprises establishments primarily engaged in operating
and/or providing access to transmission facilities and infrastructure
that they own and/or lease for the transmission of voice, data, text,
sound, and video using wired telecommunications networks. Transmission
facilities may be based on a single technology or a combination of
technologies.'' The SBA has developed a small business size standard
for this category, which is: All such firms having 1,500 or fewer
employees. According to Census Bureau data for 2007, there were 3,188
firms in this category, total, that operated for the entire year. Of
this total, 3144 firms had employment of 999 or fewer employees, and 44
firms had employment of 1,000 employees or more. Thus, under this size
standard, the majority of firms can be considered small. In addition,
according to Census Bureau data for 2007, there were a total of 396
firms in the category Internet Service Providers (broadband) that
operated for the entire year. Of this total, 394 firms had employment
of 999 or fewer employees, and two firms had employment of 1,000
employees or more. Consequently, the Commission estimates that the
majority of these firms are small entities that may be affected by
rules adopted pursuant to the Order.
221. Internet Publishing and Broadcasting and Web Search Portals.
The Commission's actions may pertain to interconnected VoIP services,
which could be provided by entities that provide other services such as
email, online gaming, web browsing, video conferencing, instant
messaging, and other, similar IP-enabled services. The Commission has
not adopted a size standard for entities that create or provide these
types of services or applications. However, the Census Bureau has
identified firms that ``primarily engaged in (1) publishing and/or
broadcasting content on the Internet exclusively or (2) operating Web
sites that use a search engine to generate and maintain extensive
databases of Internet addresses and content in an easily searchable
format (and known as Web search portals).'' The SBA has developed a
small business size standard for this category, which is: All such
firms having 500 or fewer employees. According to Census Bureau data
for 2007, there were 2,705 firms in this category that operated for the
entire year. Of this total, 2,682 firms had employment of 499 or fewer
employees, and 23 firms had employment of 500 employees or more.
Consequently, the Commission estimates that the majority of these firms
are small entities that may be affected by rules adopted pursuant to
the Order.
222. Data Processing, Hosting, and Related Services. Entities in
this category ``primarily . . . provid[e] infrastructure for hosting or
data processing services.'' The SBA has developed a small business size
standard for this category; that size standard is $25 million or less
in average annual receipts. According to Census Bureau data for 2007,
there were 8,060 firms in this category that operated for the entire
year. Of these, 7,744 had annual receipts of under $ $24,999,999.
Consequently, the Commission estimates that the majority of these firms
are small entities that may
[[Page 44445]]
be affected by rules adopted pursuant to the Order.
223. All Other Information Services. The Census Bureau defines this
industry as including ``establishments primarily engaged in providing
other information services (except news syndicates, libraries,
archives, Internet publishing and broadcasting, and Web search
portals).'' The Commission's actions pertain to interconnected VoIP
services, which could be provided by entities that provide other
services such as email, online gaming, web browsing, video
conferencing, instant messaging, and other, similar IP-enabled
services. The SBA has developed a small business size standard for this
category; that size standard is $7.0 million or less in average annual
receipts. According to Census Bureau data for 2007, there were 367
firms in this category that operated for the entire year. Of these, 334
had annual receipts of under $5.0 million, and an additional 11 firms
had receipts of between $5 million and $9,999,999. Consequently, the
Commission estimates that the majority of these firms are small
entities that may be affected by its action.
5. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements
224. In the Order the Commission adopts today, it establishes four
technology-neutral tiers of bids available for bidding with varying
speed and usage allowances, and for each tier will differentiate
between bids that would offer either lower or higher latency. All
bidders must offer a service at rates that are within a reasonable
range of rates for comparable fixed wireline services offered in urban
areas
225. Once a winning bidder is authorized to begin receiving Phase
II auction support, it will have six years to deploy a voice and
broadband-capable network meeting the relevant public interest
obligations to the required number of locations included in its bid.
Phase II auction recipients will also be required to meet interim
service milestones. They will have to complete construction to 40
percent of the requisite number of locations in a state by the end of
the third year of funding authorization, an additional 20 percent in
subsequent years, with 100 percent by the end of the sixth year. Phase
II recipients that at the end of their support term have deployed to at
least 95 percent, but less than 100 percent of the number of funded
locations will be required to refund support based on the number of
funded locations left unserved in the state. The amount refunded will
be based on one-half the average support for the top five percent of
the highest cost funded locations nationwide.
226. Entities that are interested in participating in the Phase II
auction will be required to file a short-form application in order to
establish their eligibility to participate. In their short-form
applications, they will be required to submit any information or
documentation required to establish their eligibility for any bidding
credits the Commission adopts. If applicants are already ETCs they will
need to identify themselves as such and all applicants will be required
to submit a certification acknowledging that they must be designated as
an ETC for the area in which they will receive support prior to being
authorized to begin receiving support. Applicants will be required to
submit a certification of their financial and technical capabilities to
provide the required service in the required timeframe and information
that establishes their identity, including disclosing parties with
ownership interests and any agreements the applicants may have relating
to the support to be sought through the Phase II auction. Applicants
will also be required to indicate the type of bid they intend to place
and describe the technology or technologies that will be used to
provide service for each category of bid. If an applicant plans to use
spectrum, it must also provide additional details about its spectrum
access, including demonstrating that it has the proper authorizations,
if applicable, and access and that the spectrum resources will be
sufficient to cover peak network usage and deliver the minimum
performance requirements.
227. Applicants will also be required to certify in their short-
form application that they have provided voice, broadband, and/or
electric transmission or distribution services for at least two years
or they are the wholly-owned subsidiary of such an entity, and specify
the number of years they have been operating. Applicants that have
provided voice or broadband services must also certify that they have
filed FCC Form 477s as required during that time period. Applicants
that have operated only an electric distribution or transmission
network must submit qualified operating or financial reports for the
relevant time period that they have filed with the relevant financial
institution along with a certification stating that those submissions
are the true and accurate copies of the submissions made to the
relevant financial institution. Applicants that are able to demonstrate
that they have operated such a network for at least two years will also
be required to submit the prior fiscal year's audited financial
statements. Applicants that meet these requirements but that do not
audit their financial statements in the ordinary course of business can
instead certify that they will submit their audited financial
statements for the prior fiscal year during the long-form application
review process if they are selected as a winning bidder. A winning
bidder that fails to submit its audited financial statements during the
long-form application stage will be subject to a forfeiture. If
applicants cannot meet these requirements, in the alternative,
applicants may instead submit audited financial statements from the
three most recent consecutive fiscal years and a letter of interest
from a qualified bank that the bank would provide a letter of credit to
the bidder if the bidder were selected for bids of a certain dollar
magnitude. The short-form application may also include additional
certifications or requirements that are adopted in an auction
procedures public notice.
228. Within a specified number of days of the release of a public
notice announcing an entity as a winning bidder, that winning bidder
will be required to file a long-form application. In this long-form
application, winning bidders will be required to submit a self-
certification regarding their financial and technical qualifications
and a self-certification that specifies that that they will be able to
meet all of the applicable public interest obligations for the relevant
categories, including the requirement that they offer service at rates
that are equal or lower to the Commission's reasonable comparability
benchmarks for fixed wireline services offered in urban areas. Winning
bidders will also be required to submit a description of the technology
and system design they intend to use to deliver voice and broadband
service, including a network diagram which must be certified by a
professional engineer. The professional engineer must certify that the
network is capable of delivering, to at least 95 percent of the
required number of locations in each relevant state, voice and
broadband service that meets the requisite performance requirements.
Winning bidders proposing to use wireless technologies must also
provide certain information related to their spectrum access and
licenses if applicable.
229. Winning bidders will also have to certify in their long-form
applications that they have available funds for all project costs that
will exceed the amount of support that will be received
[[Page 44446]]
from the Phase II auction for the first two years of their support term
and that they will comply with program requirements, including service
milestones. They will also have to describe how the required
construction will be funded and include financial projections that
demonstrate that they can cover the necessary debt service payments
over the life of the loan. The long-form application may also include
additional certifications or requirements that are adopted in an
auction procedures public notice.
230. Within the number of days specified by public notice, the
winning bidder will be required to submit a letter of credit commitment
letter from a qualified bank as part of the long-form application
process. Within 180 days of being announced as a winning bidder,
winning bidders that demonstrated in their short-form application that
they had provided a voice, broadband and/or electric distribution or
transmission service for at least two years and did not submit their
audited financials during the short-form application process, must
submit their audited financial statements for the prior year. Within
180 days of an entity being announced as a winning bidder, the winning
bidder will be required to submit appropriate documentation in its
long-form application of its ETC designation in all areas for which it
will receive support, documentation showing that the designated areas
cover the bid areas, and a letter from an officer of the company
certifying that the ETC designation covers the relevant areas where the
winning bidder will receive support.
231. After the Commission has reviewed the winning bidder's long-
form application and has determined that it is qualified to be
authorized to begin receiving Phase II support, a public notice will be
released stating that the winning bidder is ready to be authorized. At
that point, the winning bidder will have the number of days specified
by public notice to submit an irrevocable standby letter of credit from
a bank that meets the Commission's requirements and an opinion letter
from legal counsel. After the letter of credit and opinion letter are
approved a public notice will be released authorizing the winning
bidder to begin receiving Phase II auction support. Phase II recipients
will be required to maintain an open and renewed letter of credit until
USAC has verified that their build-outs are complete.
232. If an entity that files a short-form application defaults, it
will be subject to a forfeiture. An entity will be considered in
default if it fails to timely file a long-form application or meet
document submission deadlines, is found ineligible or unqualified to
receive Phase II support by the Bureaus on delegated authority, or
otherwise defaults on its bid or is disqualified for any reason prior
to the authorization of the support.
233. Once a Phase II recipient has been authorized to begin
receiving support, it will be required to report certain information to
the Commission so that the Commission can track the progress of Phase
II recipients and monitor their use of the public's funds before and
after they meet service milestones. Specifically, each year Phase II
auction recipients will be required to submit by the last business day
of the second calendar month following each support year a list of the
geocoded locations and the total number of locations to which they have
newly offered service meeting the requisite requirements with Connect
America support in the prior year. The first list they submit, will
also include a list of all of the locations where the recipient already
offers service meeting the Commission's requirements before receiving
support. Carrier are encouraged to submit their locations on a rolling
basis to an online portal that will be developed by the Bureau and
USAC, 30 days from the date of deployment. By the last business day of
the second calendar month following the end of certain support years,
recipients will also be required to submit certifications that they
have met the relevant interim service milestones.
234. Like all recipients of Connect America support, all Phase II
recipients are also required to file section 54.313 annual reports and
section 54.314 certifications. In addition to other information
required to be submitted in the section 54.313 annual reports, Phase II
recipients will be required to identify the total amount of Connect
America Phase II support they used for capital expenditures in the
previous year and certify that they have available funds for all
project costs that will exceed the amount of support that will be
received from the Phase II auction for the next calendar year. After
they have met the final service milestone, recipients will also be
required to certify in their section 54.313 annual reports that the
network they operated in the prior year met the Commission's
performance requirements.
235. Analogous application and reporting requirements also are
adopted for recipients of support awarded through the Remote Areas Fund
auction.
6. Steps Taken To Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
236. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its approach, which may
include the following four alternatives, among others: (1) The
establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or any part thereof, for small
entities.
237. The Commission has taken a number of steps to ensure that
small entities have the opportunity to participate in the Phase II
auction. For example, the Commission adopts different performance
standards for bidders to maximize the types of entities that can
participate in the Phase II auction. Recognizing that not all entities,
including some small entities, will be able to meet the baseline
performance standards the Commission adopts, it permits entities to
choose to meet minimum performance requirements. Although the
Commission will rank bids using weights and minimum performance bidders
are not guaranteed a 10-year support term under certain circumstances,
it does not restrict the geographic area where entities placing bids
for relaxed standards can bid.
238. Because the Phase II challenge process was a resource-
intensive process for all entities involved, the Commission has also
decided to rely on Form 477 data and conduct a more streamlined
challenge process to determine areas that are eligible for the Phase II
auction. This means that competitors, who can be small entities, that
qualify as an unsubsidized competitor will only have to file a Form 477
as they are already required to do to ensure that the areas they serve
are not overbuilt and may submit comments within 30 days of the
publication of the preliminary eligible census block list if they have
built out since they have submitted June 2015 Form 477 data.
239. The Commission expects that the minimum geographic area for
bidding will be a census block group containing one or more eligible
census blocks. The Commission found adopting a larger minimum
geographic unit would preclude entities from participating in the Phase
II auction, including small
[[Page 44447]]
entities that intend to construct a smaller network or edge out their
networks. The Commission expects that the auction design adopted by the
Commission in the Auction Procedures Public Notice will similarly
account for the needs of small entities.
240. Based on lessons learned from the rural broadband experiments
and in response to comments submitted by participating entities,
including small entities, the Commission also adopts requirements for
the short-form and long-form applications that will maximize the number
and types of entities that can participate. For example, in the rural
broadband experiments, the Commission required that provisionally
selected bidders submit three years of audited financials. A number of
entities, including small entities, could not meet this requirement
because they had not been in business for three years or they claimed
audited financials were prohibitively expensive. For the Phase II
auction and the Remote Areas Fund, the Commission will require that
applicants certify in their short-form application that they have
provided voice, broadband, and/or electric distribution or transmission
services for at least two years or that they are the wholly-owned
subsidiary of such an entity. Applicants that have provided voice or
broadband services must also certify that they have filed FCC Form 477s
as required during that time period and submit their audited financial
statements from the prior fiscal year. Applicants that have operated
only an electric distribution or transmission network must submit
qualified operating or financial reports. As an alternative, the
Commission also permits applicants that have demonstrated that they
have operated a network for two years but do not audit their financial
statements in the ordinary course of business, many which may be small
companies, to wait to submit audited financial statements until the
long-form application review process. This will allow such applicants
to avoid the cost of obtaining an audit if they are not ultimately
announced as winning bidders. Also, by requiring only one year of
audited financials, the Commission reduces the cost of this requirement
for entities that have already demonstrated that they are able to
maintain a voice, broadband, and/or electric distribution or
transmission network for two years.
241. Recognizing that these requirements may preclude entities,
including small entities, that have not operated a voice, broadband,
and/or electric distribution or transmission network for two years, the
Commission also provides the alternative of letting applicants instead
submit three year of audited financials and a letter of interest from a
qualified bank that the bank would provide a letter of credit to the
bidder if the bidder were selected for bids of a certain dollar
magnitude. The Commission concluded that its interest in having some
level of insight into the financial health over a significant period of
time of applicants that lack an operating history outweigh the costs of
obtaining three years of financial statements for this subset of
entities.
242. Additionally, the Commission has taken steps to reduce the
costs of the letter of credit requirement for the recipients of support
awarded through a competitive bidding process to serve fixed locations
in response to claims from entities, particularly small entities, that
the letter of credit requirement for the rural broadband experiments
was prohibitively expensive. First, the Commission only requires that
recipients maintain an open irrevocable standby letter of credit until
it has been verified that they have met the final service milestone; in
the rural broadband experiments the letter of credit originally had to
be open and renewed for the entire support term. Second, recipients can
modestly reduce the value of their letters of credit as they have made
substantial progress in building out their networks by meeting certain
service milestones. Third, the Commission has modified its issuing bank
eligibility requirements for all recipients of support authorized
through competitive bidding to serve fixed locations. The Commission
has expanded the pool of eligible U.S. banks and made the National
Rural Utilities Cooperative Finance Corporation (CFC) an eligible
issuing bank. This will potentially reduce the costs and other
challenges of obtaining a letter of credit for entities that lack
established business relationships with larger banks.
243. The Commission notes that the reporting requirements it adopts
are tailored to ensuring that support is used for its intended purpose
and so that the Commission can monitor the progress of recipients in
meeting their service milestones. The Commission finds that the
importance of monitoring the use of the public's funds outweighs the
burden of filing the required information on all entities, including
small entities, particularly because much of the information that it
requires they report is information it expects they will already be
collecting to ensure they comply with the terms and conditions of
support and they will be able to submit their location data on a
rolling basis to help minimize the burden of uploading a large number
of locations at once.
244. People with Disabilities. To request materials in accessible
formats for people with disabilities (braille, large print, electronic
files, audio format), send an email to fcc504@fcc.gov or call the
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
X. Ordering Clauses
245. Accordingly, it is ordered, pursuant to the authority
contained in sections 1, 2, 4(i), 5, 10, 201-206, 214, 218-220, 251,
252, 254, 256, 303(r), 332, 403, 405, and 503 of the Communications Act
of 1934, as amended, and section 706 of the Telecommunications Act of
1996, 47 U.S.C. 151, 152, 154(i), 155, 160, 201-206, 214, 218-220, 251,
252, 254, 256, 303(r), 332, 403, 405, 503, 1302, and sections 1.1,
1.427, and 1.429 of the Commission's rules, 47 CFR 1.1, 1.427, and
1.429, that this Report and Order and concurrently adopted Further
Notice of Proposed Rulemaking is adopted, effective thirty (30) days
after publication of the text or summary thereof in the Federal
Register, except for those rules and requirements involving Paperwork
Reduction Act burdens, which shall become effective immediately upon
announcement in the Federal Register of OMB approval. It is the
Commission's intention in adopting these rules that if any of the rules
that the Commission retains, modifies, or adopts herein, or the
application thereof to any person or circumstance, are held to be
unlawful, the remaining portions of the rules not deemed unlawful, and
the application of such rules to other persons or circumstances, shall
remain in effect to the fullest extent permitted by law.
246. It is further ordered that, pursuant to section 1.3 of the
Commission's rules, 47 CFR 1.3, the Petition for Waiver filed by NTCA--
The Rural Broadband Association on Feb. 3, 2015 is dismissed as moot in
part and denied in part to the extent described herein.
247. It is further ordered that, pursuant to section 1.3 of the
Commission's rules, 47 CFR 1.3, the Petition for Waiver filed by The
National Rural Utilities Cooperative Finance Corporation and the Rural
Telephone Finance Cooperative on Jan. 21, 2015 is dismissed as moot.
248. It is further ordered that, pursuant to section 1.3 of the
Commission's rules, 47 CFR 1.3, the Petition for Waiver filed by
Allamakee-
[[Page 44448]]
Clayton Electric Cooperative, Inc. on Jan. 30, 2015 is dismissed as
moot.
249. It is further ordered that, pursuant to section 1.3 of the
Commission's rules, 47 CFR 1.3, the Petition for Waiver filed by
Midwest Energy Cooperative, Inc. on March 20, 2015 is dismissed as
moot.
250. It is further ordered that Part 54 of the Commission's rules,
47 CFR part 54, is amended as set forth in Appendix A, and such rule
amendments shall be effective thirty (30) days after publication of the
rules amendments in the Federal Register, except to the extent they
contain information collections subject to PRA review. The rules that
contain information collections subject to PRA review shall become
effective immediately upon announcement in the Federal Register of OMB
approval and an effective date.
251. It is further ordered that the Commission shall send a copy of
this Report and Order and concurrently adopted Further Notice of
Proposed Rulemaking to Congress and the Government Accountability
Office pursuant to the Congressional Review Act, see 5 U.S.C.
801(a)(1)(A).
252. It is further ordered, that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of this Report and Order and concurrently adopted Further Notice
of Proposed Rulemaking, including the Final Regulatory Flexibility
Analysis, to the Chief Counsel for Advocacy of the Small Business
Administration.
List of Subjects
47 CFR Part 1
Administrative practice and procedure, Civil rights, Claims,
Communications common carriers, Cuba, Drug abuse, Environmental impact
statements, Equal access to justice, Equal employment opportunity,
Federal buildings and facilities, Government employees, Income taxes,
Indemnity payments, Individuals with disabilities, Investigations,
Lawyers, Metric system, Penalties, Radio, Reporting and recordkeeping
requirements, Telecommunications, Television, Wages.
47 CFR Part 54
Communications common carriers, Health facilities, Infants and
children, Internet, Libraries, Reporting and recordkeeping
requirements, Schools, Telecommunications, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Final Rules
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR parts 1and 54 as follows:
PART 1--PRACTICE AND PROCEDURE
0
1. The authority citation for part 1 continues to read as follows:
Authority: 15 U.S.C. 79, et seq.; 47 U.S.C. 151, 154(i), 154(j),
155, 157, 160, 201, 225, 227, 303, 309, 332, 1403, 1404, 1451, 1452,
and 1455.
0
2. Section 1.21001 is amended by revising paragraph (b)(6) to read as
follows:
Sec. 1.21001 Participation in competitive bidding for support.
* * * * *
(b) * * *
(6) Certification that the applicant is in compliance with all
statutory and regulatory requirements for receiving the universal
service support that the applicant seeks, or, if expressly allowed by
the rules specific to a high-cost support mechanism, a certification
that the applicant acknowledges that it must be in compliance with such
requirements before being authorized to receive support;
* * * * *
PART 54--UNIVERSAL SERVICE
0
3. The authority citation for part 54 continues to read as follows:
Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220,
254, 303(r), 403, and 1302 unless otherwise noted.
0
4. Section 54.309 is amended by revising paragraph (a) to read as
follows:
Sec. 54.309 Connect America Fund Phase II Public Interest
Obligations.
(a) Recipients of Connect America Phase II support are required to
offer broadband service with latency suitable for real-time
applications, including Voice over Internet Protocol, and usage
capacity that is reasonably comparable to comparable offerings in urban
areas, at rates that are reasonably comparable to rates for comparable
offerings in urban areas. For purposes of determining reasonable
comparable usage capacity, recipients are presumed to meet this
requirement if they meet or exceed the usage level announced by public
notice issued by the Wireline Competition Bureau. For purposes of
determining reasonable comparability of rates, recipients are presumed
to meet this requirement if they offer rates at or below the applicable
benchmark to be announced annually by public notice issued by the
Wireline Competition Bureau, or no more than the non-promotional prices
charged for a comparable fixed wireline service in urban areas in the
state or U.S. Territory where the eligible telecommunications carrier
receives support.
(1) Recipients of Connect America Phase II model-based support are
required to offer broadband service at actual speeds of at least 10
Mbps downstream/1 Mbps upstream.
(2) Recipients of Connect America Phase II support awarded through
a competitive bidding process are required to offer broadband service
meeting the performance standards required in bid tiers based on
performance standards.
(i) Winning bidders meeting the minimum performance tier standards
are required to offer broadband service at actual speeds of 10 Mbps
downstream and 1 Mbps upstream and to offer at least 150 gigabytes of
monthly usage.
(ii) Winning bidders meeting the baseline performance tier
standards are required to offer broadband service at actual speeds of
at least 25 Mbps downstream and 3 Mbps upstream and offer a minimum
usage allowance of 150 GB per month, or that reflects the average usage
of a majority of fixed broadband customers, using Measuring Broadband
America data or a similar data source, whichever is higher, and
announced annually by public notice issued by the Wireline Competition
Bureau over the 10-year term.
(iii) Winning bidders meeting the above-baseline performance tier
standards are required to offer broadband service at actual speeds of
at least 100 Mbps downstream and 20 Mbps upstream and offer an
unlimited monthly usage allowance.
(iv) Winning bidders meeting the Gigabit performance tier standards
are required to offer broadband service at actual speeds of at least 1
Gigabit per second downstream and 500 Mbps upstream and offer an
unlimited monthly usage allowance.
(v) For each of the tiers in paragraphs (a)(2)(i) through (iv) of
this section, bidders are required to meet one of two latency
performance levels:
(A) Low latency bidders will be required to meet 95 percent or more
of all peak period measurements of network round trip latency at or
below 100 milliseconds; and
(B) High latency bidders will be required to meet 95 percent or
more of all peak period measurements of
[[Page 44449]]
network round trip latency at or below 750 ms and, with respect to
voice performance, demonstrate a score of four or higher using the Mean
Opinion Score (MOS).
* * * * *
0
5. Section 54.310 is amended by revising paragraph (c) to read as
follows:
Sec. 54.310 Connect America Fund for Price Cap Territories--Phase II.
* * * * *
(c) Deployment obligation. Recipients of Connect America Phase II
model-based support must complete deployment to 40 percent of supported
locations by December 31, 2017, to 60 percent of supported locations by
December 31, 2018, to 80 percent of supported locations by December 31,
2019, and to 100 percent of supported locations by December 31, 2020.
Recipients of Connect America Phase II awarded through a competitive
bidding process must complete deployment to 40 percent of supported
locations by the end of the third year, to 60 percent of supported
locations by the end of the fourth year, to 80 percent of supported
locations by the end of the fifth year, and to 100 percent of supported
locations by the end of the sixth year. Compliance shall be determined
based on the total number of supported locations in a state.
(1) For purposes of meeting the obligation to deploy to the
requisite number of supported locations in a state, recipients of
Connect America Phase II model-based support may serve unserved
locations in census blocks with costs above the extremely high-cost
threshold instead of locations in eligible census blocks, provided that
they meet the public interest obligations set forth in Sec. 54.309(a)
introductory text and (a)(1) for those locations and provided that the
total number of locations covered is greater than or equal to the
number of supported locations in the state.
(2) Recipients of Connect America Phase II support may elect to
deploy to 95 percent of the number of supported locations in a given
state with a corresponding reduction in support computed based on the
average support per location in the state times 1.89.
* * * * *
0
6. Section 54.313 is amended by revising paragraph (e) to read as
follows:
Sec. 54.313 Annual reporting requirements for high-cost recipients.
* * * * *
(e) In addition to the information and certifications in paragraph
(a) of this section, the following requirements apply to Phase II and
Remote Areas Fund recipients:
(1) Any price cap carrier that elects to receive Connect America
Phase II model-based support shall provide:
(i) On July 1, 2016 a list of the geocoded locations already
meeting the Sec. 54.309 public interest obligations at the end of
calendar year 2015, and the total amount of Phase II support, if any,
the price cap carrier used for capital expenditures in 2015.
(ii) On July 1, 2017 and every year thereafter ending July 1, 2021,
the following information:
(A) The number, names, and addresses of community anchor
institutions to which the eligible telecommunications carrier newly
began providing access to broadband service in the preceding calendar
year;
(B) The total amount of Phase II support, if any, the price cap
carrier used for capital expenditures in the previous calendar year;
and
(C) A certification that it bid on category one telecommunications
and Internet access services in response to all FCC Form 470 postings
seeking broadband service that meets the connectivity targets for the
schools and libraries universal service support program for eligible
schools and libraries (as described in Sec. 54.501) located within any
area in a census block where the carrier is receiving Phase II model-
based support, and that such bids were at rates reasonably comparable
to rates charged to eligible schools and libraries in urban areas for
comparable offerings.
(2) Any recipient of Phase II or Remote Areas Fund support awarded
through a competitive bidding process shall provide:
(i) Starting the first July 1st after receiving support until the
July 1st after the recipient's support term has ended:
(A) The number, names, and addresses of community anchor
institutions to which the eligible telecommunications carrier newly
began providing access to broadband service in the preceding calendar
year;
(B) The total amount of support, if any, the recipient used for
capital expenditures in the previous calendar year; and
(C) A certification that it bid on category one telecommunications
and Internet access services in response to all FCC Form 470 postings
seeking broadband service that meets the connectivity targets for the
schools and libraries universal service support program for eligible
schools and libraries (as described in Sec. 54.501) located within any
area in a census block where the carrier is receiving support awarded
through auction, and that such bids were at rates reasonably comparable
to rates charged to eligible schools and libraries in urban areas for
comparable offerings.
(ii) Starting the first July 1st after receiving support until the
July 1st after the recipient's penultimate year of support, a
certification that the recipient has available funds for all project
costs that will exceed the amount of support that will be received for
the next calendar year.
(iii) Starting the first July 1st after meeting the final service
milestone in Sec. 54.310(c) of this chapter until the July 1st after
the Phase II recipient's support term has ended, a certification that
the Phase II-funded network that the Phase II auction recipient
operated in the prior year meets the relevant performance requirements
in Sec. 54.309 of this chapter, or that the network that the Remote
Areas Fund recipient operated in the prior year meets the relevant
performance requirements for the Remote Areas Fund.
* * * * *
0
7. Section 54.315 is added to read as follows:
Sec. 54.315 Application process for phase II support distributed
through competitive bidding.
(a) Application to participate in competitive bidding for Phase II
support. In addition to providing information specified in Sec.
1.21001(b) of this chapter and any other information required by the
Commission, an applicant to participate in competitive bidding for
Phase II auction support shall:
(1) Provide ownership information as set forth in Sec. 1.2112(a)
of this chapter;
(2) Certify that the applicant is financially and technically
qualified to meet the public interest obligations of Sec. 54.309 for
each relevant tier and in each area for which it seeks support;
(3) Disclose its status as an eligible telecommunications carrier
to the extent applicable and certify that it acknowledges that it must
be designated as an eligible telecommunications carrier for the area in
which it will receive support prior to being authorized to receive
support;
(4) Indicate the tier of bids that the applicant plans to make and
describe the technology or technologies that will be used to provide
service for each tier of bid;
(5) Submit any information required to establish eligibility for
any bidding weights adopted by the Commission in an order or public
notice;
(6) To the extent that an applicant plans to use spectrum to offer
its voice
[[Page 44450]]
and broadband services, demonstrate it has the proper authorizations,
if applicable, and access to operate on the spectrum it intends to use,
and that the spectrum resources will be sufficient to cover peak
network usage and deliver the minimum performance requirements to serve
all of the fixed locations in eligible areas, and certify that it will
retain its access to the spectrum for at least 10 years from the date
of the funding authorization; and
(7) Submit specified operational and financial information.
(i) Submit a certification that the applicant has provided a voice,
broadband, and/or electric transmission or distribution service for at
least two years or that it is a wholly-owned subsidiary of such an
entity, and specifying the number of years the applicant or its parent
company has been operating, and submit the financial statements from
the prior fiscal year that are audited by a certified public
accountant. If the applicant is not audited in the ordinary course of
business, in lieu of submitting audited financial statements it must
certify that it will provide financial statements from the prior fiscal
year that are audited by a certified independent public accountant by a
specified deadline during the long-form application review process.
(A) If the applicant has provided a voice and/or broadband service
it must certify that it has filed FCC Form 477s as required during this
time period.
(B) If the applicant has operated only an electric transmission or
distribution service, it must submit qualified operating or financial
reports that it has filed with the relevant financial institution for
the relevant time period along with a certification that the submission
is a true and accurate copy of the reports that were provided to the
relevant financial institution.
(ii) If an applicant cannot meet the requirements in paragraph
(a)(7)(i) of this section, in the alternative it must submit the
audited financial statements from the three most recent fiscal years
and a letter of interest from a bank meeting the qualifications set
forth in paragraph (c)(2) of this section, that the bank would provide
a letter of credit as described in paragraph (c) of this section to the
bidder if the bidder were selected for bids of a certain dollar
magnitude.
(b) Application by winning bidders for Phase II auction support--
(1) Deadline. As provided by public notice, winning bidders for Phase
II auction support shall file an application for Phase II auction
support no later than the number of business days specified after the
public notice identifying them as winning bidders.
(2) Application contents. An application for Phase II auction
support must contain:
(i) Identification of the party seeking the support, including
ownership information as set forth in Sec. 1.2112(a) of this chapter;
(ii) Certification that the applicant is financially and
technically qualified to meet the public interest obligations of Sec.
54.309 for each tier in which it is a winning bidder and in each area
for which it seeks support;
(iii) Certification that the applicant will meet the relevant
public interest obligations for each relevant tier, including the
requirement that it will offer service at rates that are equal or lower
to the Commission's reasonable comparability benchmarks for fixed
wireline services offered in urban areas;
(iv) A description of the technology and system design the
applicant intends to use to deliver voice and broadband service,
including a network diagram which must be certified by a professional
engineer. The professional engineer must certify that the network is
capable of delivering, to at least 95 percent of the required number of
locations in each relevant state, voice and broadband service that
meets the requisite performance requirements in Sec. 54.309;
(v) Certification that the applicant will have available funds for
all project costs that exceed the amount of support to be received from
the Phase II auction for the first two years of its support term and
that the applicant will comply with all program requirements, including
service milestones;
(vi) A description of how the required construction will be funded,
including financial projections that demonstrate the applicant can
cover the necessary debt service payments over the life of the loan, if
any;
(vii) Certification that the party submitting the application is
authorized to do so on behalf of the applicant; and
(viii) Such additional information as the Commission may require.
(3) No later than the number of days provided by public notice, the
applicant shall submit a letter from a bank meeting the eligibility
requirements outlined in paragraph (c) of this section committing to
issue an irrevocable stand-by letter of credit, in the required form,
to the winning bidder. The letter shall at a minimum provide the dollar
amount of the letter of credit and the issuing bank's agreement to
follow the terms and conditions of the Commission's model letter of
credit.
(4) No later than 180 days after the public notice identifying them
as a winning bidder, bidders that did not submit audited financial
statements in their short-form application pursuant to paragraph
(a)(7)(i) of this section must submit the financial statements from the
prior fiscal year that are audited by a certified independent public
accountant.
(5) No later than 180 days after the public notice identifying it
as a winning bidder, the applicant shall certify that it is an eligible
telecommunications carrier in any area for which it seeks support and
submit the relevant documentation supporting that certification.
(6) Application processing. (i) No application will be considered
unless it has been submitted in an acceptable form during the period
specified by public notice. No applications submitted or demonstrations
made at any other time shall be accepted or considered.
(ii) Any application that, as of the submission deadline, either
does not identify the applicant seeking support as specified in the
public notice announcing application procedures or does not include
required certifications shall be denied.
(iii) An applicant may be afforded an opportunity to make minor
modifications to amend its application or correct defects noted by the
applicant, the Commission, the Administrator, or other parties. Minor
modifications include correcting typographical errors in the
application and supplying non-material information that was
inadvertently omitted or was not available at the time the application
was submitted.
(iv) Applications to which major modifications are made after the
deadline for submitting applications shall be denied. Major
modifications include, but are not limited to, any changes in the
ownership of the applicant that constitute an assignment or change of
control, or the identity of the applicant, or the certifications
required in the application.
(v) After receipt and review of the applications, a public notice
shall identify each winning bidder that may be authorized to receive
Phase II auction support after the winning bidder submits a letter of
credit and an accompanying opinion letter as described in paragraph (c)
of this section, in a form acceptable to the Commission. Each such
winning bidder shall submit a letter of credit and accompanying opinion
letter as required by paragraph (c) of this section, in a form
acceptable to the Commission no
[[Page 44451]]
later than the number of business days provided by public notice.
(vi) After receipt of all necessary information, a public notice
will identify each winning bidder that is authorized to receive Phase
II auction support.
(c) Letter of credit. Before being authorized to receive Phase II
auction support, a winning bidder shall obtain an irrevocable standby
letter of credit which shall be acceptable in all respects to the
Commission.
(1) Value. Each recipient authorized to receive Phase II support
shall maintain the standby letter of credit or multiple standby letters
of credit in an amount equal to at a minimum the amount of Phase II
auction support that has been disbursed and that will be disbursed in
the coming year, until the Universal Service Administrative Company has
verified that the recipient met the final service milestone as
described in Sec. 54.310(c).
(i) Once the recipient has met its 60 percent service milestone, it
may obtain a new letter of credit or renew its existing letter of
credit so that it is valued at a minimum at 90 percent of the total
support amount already disbursed plus the amount that will be disbursed
in the coming year.
(ii) Once the recipient has met its 80 percent service milestone,
it may obtain a new letter of credit or renew its existing letter of
credit so that it is valued at a minimum at 80 percent of the total
support that has been disbursed plus the amount that will be disbursed
in the coming year.
(2) The bank issuing the letter of credit shall be acceptable to
the Commission. A bank that is acceptable to the Commission is:
(i) Any United States bank
(A) That is insured by the Federal Deposit Insurance Corporation,
and
(B) That has a bank safety rating issued by Weiss of B- or better;
or
(ii) CoBank, so long as it maintains assets that place it among the
100 largest United States Banks, determined on basis of total assets as
of the calendar year immediately preceding the issuance of the letter
of credit and it has a long-term unsecured credit rating issued by
Standard & Poor's of BBB- or better (or an equivalent rating from
another nationally recognized credit rating agency); or
(iii) The National Rural Utilities Cooperative Finance Corporation,
so long as it maintains assets that place it among the 100 largest
United States Banks, determined on basis of total assets as of the
calendar year immediately preceding the issuance of the letter of
credit and it has a long-term unsecured credit rating issued by
Standard & Poor's of BBB- or better (or an equivalent rating from
another nationally recognized credit rating agency); or
(iv) Any non-United States bank
(A) That is among the 50 largest non-U.S. banks in the world,
determined on the basis of total assets as of the end of the calendar
year immediately preceding the issuance of the letter of credit
(determined on a U.S. dollar equivalent basis as of such date);
(B) Has a branch office in the District of Columbia or such other
branch office agreed to by the Commission;
(C) Has a long-term unsecured credit rating issued by a widely-
recognized credit rating agency that is equivalent to a BBB- or better
rating by Standard & Poor's; and
(D) Issues the letter of credit payable in United States dollars
(3) A winning bidder for Phase II auction support shall provide
with its letter of credit an opinion letter from its legal counsel
clearly stating, subject only to customary assumptions, limitations,
and qualifications, that in a proceeding under Title 11 of the United
States Code, 11 U.S.C. 101 et seq. (the ``Bankruptcy Code''), the
bankruptcy court would not treat the letter of credit or proceeds of
the letter of credit as property of the winning bidder's bankruptcy
estate under section 541 of the Bankruptcy Code.
(4) Authorization to receive Phase II auction support is
conditioned upon full and timely performance of all of the requirements
set forth in this section, and any additional terms and conditions upon
which the support was granted.
(i) Failure by a Phase II auction support recipient to meet its
service milestones as required by Sec. 54.310 will trigger reporting
obligations and the withholding of support as described in Sec.
54.320(c). Failure to come into full compliance within 12 months will
trigger a recovery action by the Universal Service Administrative
Company. If the Phase II recipient does not repay the requisite amount
of support within six months, the Universal Service Administrative
Company will be entitled to draw the entire amount of the letter of
credit and may disqualify the Phase II auction support recipient from
the receipt of Phase II auction support or additional universal service
support.
(ii) The default will be evidenced by a letter issued by the Chief
of the Wireline Competition Bureau or the Wireless Telecommunications
Bureau, or their respective designees, which letter, attached to a
standby letter of credit draw certificate, shall be sufficient for a
draw on the standby letter of credit for the entire amount of the
standby letter of credit.
0
8. Section 54.316 is amended by revising paragraph (a) introductory
text, paragraph (a)(4), and paragraph (b) introductory text, adding
paragraphs (b)(4) and (5), and revising paragraph (c) to read as
follows:
Sec. 54.316 Broadband deployment reporting and certification
requirements for high-cost recipients.
(a) Broadband deployment reporting. Rate-of Return ETCs, ETCs that
elect to receive Connect America Phase II model-based support, and ETCs
awarded support to serve fixed locations through a competitive bidding
process shall have the following broadband reporting obligations:
* * * * *
(4) Recipients subject to the requirements of Sec. 54.310(c) shall
report the number of locations for each state and locational
information, including geocodes, where they are offering service at the
requisite speeds. Recipients of Phase II Auction support and Remote
Areas Fund support shall also report the technology they use to serve
those locations.
(b) Broadband deployment certifications. Rate-of Return ETCs, ETCs
that elect to receive Connect America Phase II model-based support, and
ETCs awarded support through a competitive bidding process shall have
the following broadband deployment certification obligations:
* * * * *
(4) Recipients of Connect America Phase II auction support shall
provide: By the last business day of the second calendar month
following each service milestone in Sec. 54.310(c), a certification
that by the end of the prior support year, it was offering broadband
meeting the requisite public interest obligations specific in Sec.
54.309 to the required percentage of its supported locations in each
state as set forth in Sec. 54.310(c).
(5) Recipients of Remote Areas Fund support shall provide: By the
last business day of the second calendar month following each service
milestone specified by the Commission, a certification that by the end
of the prior support year, it was offering broadband meeting the
requisite public interest obligations to the required percentage of its
supported locations in each state.
(c) Filing deadlines. In order for a recipient of high-cost support
to continue to receive support for the following calendar year, or
retain its eligible telecommunications carrier designations, it must
submit the annual reporting information as set forth below.
[[Page 44452]]
(1) Price cap carriers that accepted Phase II model-based support
and rate-of-return carriers must submit the annual reporting
information required by March 1 as described in paragraphs (a) and (b)
of this section. Eligible telecommunications carriers that file their
reports after the March 1 deadline shall receive a reduction in support
pursuant to the following schedule:
(i) An eligible telecommunications carrier that files after the
March 1 deadline, but by March 9, will have its support reduced in an
amount equivalent to seven days in support;
(ii) An eligible telecommunications carrier that files on or after
March 9 will have its support reduced on a pro-rata daily basis
equivalent to the period of non-compliance, plus the minimum seven-day
reduction;
(iii) Grace period. An eligible telecommunications carrier that
submits the annual reporting information required by this section after
March 1 but before March 5 will not receive a reduction in support if
the eligible telecommunications carrier and its holding company,
operating companies, and affiliates as reported pursuant to Sec.
54.313(a)(8) in their report due July 1 of the prior year have not
missed the March 1 deadline in any prior year.
(2) Recipients of support to serve fixed locations awarded through
a competitive bidding process must submit the annual reporting
information required by the last business day of the second calendar
month following the relevant support years as described in paragraphs
(a) and (b) of this section. Eligible telecommunications carriers that
file their reports after the deadline shall receive a reduction in
support pursuant to the following schedule:
(i) An eligible telecommunications carrier that files after the
deadline, but within seven days of the deadline, will have its support
reduced in an amount equivalent to seven days in support;
(ii) An eligible telecommunications carrier that filed on or after
the eighth day following the deadline will have its support reduced on
a pro-rata daily basis equivalent to the period of non-compliance, plus
the minimum seven-day reduction;
(iii) Grace period. An eligible telecommunications carrier that
submits the annual reporting information required by this section
within three days of the deadline will not receive a reduction in
support if the eligible telecommunications carrier and its holding
company, operating companies, and affiliates as reported pursuant to
Sec. 54.313(a)(8) in their report due July 1 of the prior year have
not missed the deadline in any prior year.
0
9. Subpart J, consisting of Sec. Sec. 54.801 through 54.806, is added
to read as follows:
Subpart J--Remote Areas Fund
Sec.
54.801 Use of competitive bidding for Remote Areas Fund.
54.802 Geographic areas eligible for Remote Areas Fund support.
54.803 Provider eligibility.
54.804 Application process.
54.805 [Reserved]
54.806 Remote Areas Fund reporting obligations.
Subpart J--Remote Areas Fund
Sec. 54.801 Use of competitive bidding for Remote Areas Fund.
The Commission will use competitive bidding, as provided in part 1,
subpart AA of this chapter, to determine the recipients of Remote Areas
Fund support and the amount of support that they may receive for
specific geographic areas, subject to applicable post-auction
procedures.
Sec. 54.802 Geographic areas eligible for Remote Areas Fund support.
Remote Areas Fund support may be made available for census blocks
identified as eligible by public notice.
Sec. 54.803 Provider eligibility.
(a) Any eligible telecommunications carrier is eligible to receive
Remote Areas Fund support in eligible areas.
(b) An entity may obtain eligible telecommunications carrier
designation after public notice of winning bidders in the Remote Areas
Fund auction.
(c) To the extent any entity seeks eligible telecommunications
carrier designation prior to public notice of winning bidders for
Remote Areas Fund support, its designation as an eligible
telecommunications carrier may be conditional subject to the receipt of
Remote Areas Fund support.
Sec. 54.804 Application process.
(a) Any entity qualified to bid in the Phase II auction pursuant to
Sec. 54.315(a) shall be pre-qualified to bid in the Remote Areas Fund
auction, subject to the requirement that there be no material change in
any information previously submitted in the application to bid for
Phase II support.
(b) In addition to providing information specified in Sec.
1.21001(b) of this chapter and any other information required by the
Commission, any applicant to participate in competitive bidding for
Remote Areas Fund support shall:
(1) Provide ownership information as set forth in Sec. 1.2112(a)
of this chapter;
(2) Certify that the applicant is financially and technically
qualified to meet the public interest obligations established for
Remote Areas Fund support;
(3) Disclose its status as an eligible telecommunications carrier
to the extent applicable and certify that it acknowledges that it must
be designated as an eligible telecommunications carrier for the area in
which it will receive support prior to being authorized to receive
support;
(4) Describe the technology or technologies that will be used to
provide service for each bid;
(5) Submit any information required to establish eligibility for
any bidding weights adopted by the Commission in an order or public
notice;
(6) To the extent that an applicant plans to use spectrum to offer
its voice and broadband services, demonstrate it has the proper
authorizations, if applicable, and access to operate on the spectrum it
intends to use, and that the spectrum resources will be sufficient to
cover peak network usage and deliver the minimum performance
requirements to serve all of the fixed locations in eligible areas, and
certify that it will retain its access to the spectrum for the term of
support; and
(7) Submit specified operational and financial information.
(i) Submit a certification that the applicant has provided a voice,
broadband, and/or electric transmission or distribution service for at
least two years or that it is a wholly-owned subsidiary of such an
entity, and specifying the number of years the applicant or its parent
company has been operating, and submit the financial statements from
the prior fiscal year that are audited by a certified public
accountant. If the applicant is not audited in the ordinary course of
business, in lieu of submitting audited financial statements it must
certify that it will provide financial statements from the prior fiscal
year that are audited by a certified independent public accountant by a
specified deadline during the long-form application review process.
(A) If the applicant has provided a voice and/or broadband service
it must certify that it has filed FCC Form 477s as required during this
time period.
(B) If the applicant has operated only an electric transmission or
distribution service, it must submit qualified operating or financial
reports that it has filed with the relevant financial institution for
the relevant time period along with a certification that the submission
is a true and accurate copy of the reports that were provided to the
relevant financial institution.
[[Page 44453]]
(ii) If an applicant cannot meet the requirements in paragraph
(b)(7)(i) of this section, in the alternative it must submit the
audited financial statements from the three most recent fiscal years
and a letter of interest from a bank meeting the qualifications set
forth in paragraph (d)(2) of this section, that the bank would provide
a letter of credit as described in paragraph (d) of this section to the
bidder if the bidder were selected for bids of a certain dollar
magnitude.
(c) Application by winning bidders for Remote Areas Fund support--
(1) Deadline. As provided by public notice, winning bidders for Remote
Areas Fund support shall file an application for Remote Areas Fund
support no later than the number of business days specified after the
public notice identifying them as winning bidders.
(2) Application contents. An application for Remote Areas Fund
support must contain:
(i) Identification of the party seeking the support, including
ownership information as set forth in Sec. 1.2112(a) of this chapter;
(ii) Certification that the applicant is financially and
technically qualified to meet the public interest obligations for
Remote Areas Fund support in each area for which it seeks support;
(iii) Certification that the applicant will meet the relevant
public interest obligations, including the requirement that it will
offer service at rates that are equal or lower to the Commission's
reasonable comparability benchmarks for fixed wireline services offered
in urban areas;
(iv) A description of the technology and system design the
applicant intends to use to deliver voice and broadband service,
including a network diagram which must be certified by a professional
engineer. The professional engineer must certify that the network is
capable of delivering, to at least 95 percent of the required number of
locations in each relevant state, voice and broadband service that
meets the requisite performance requirements for Remote Areas Fund
support;
(v) Certification that the applicant will have available funds for
all project costs that exceed the amount of support to be received from
the Remote Areas Fund for the first two years of its support term and
that the applicant will comply with all program requirements, including
service milestones;
(vi) A description of how the required construction will be funded,
including financial projections that demonstrate the applicant can
cover the necessary debt service payments over the life of the loan, if
any;
(vii) Certification that the party submitting the application is
authorized to do so on behalf of the applicant; and
(viii) Such additional information as the Commission may require.
(3) No later than the number of days provided by public notice, the
applicant shall submit a letter from a bank meeting the eligibility
requirements outlined in paragraph (d) of this section committing to
issue an irrevocable stand-by letter of credit, in the required form,
to the winning bidder. The letter shall at a minimum provide the dollar
amount of the letter of credit and the issuing bank's agreement to
follow the terms and conditions of the Commission's model letter of
credit.
(4) No later than 180 days after the public notice identifying them
as a winning bidder, bidders that did not submit audited financial
statements in their short-form application pursuant to paragraph
(b)(7)(i) of this section must submit the financial statements from the
prior fiscal year that are audited by a certified independent public
accountant.
(5) No later than 180 days after the public notice identifying it
as a winning bidder, the applicant shall certify that it is an eligible
telecommunications carrier in any area for which it seeks support and
submit the relevant documentation supporting that certification.
(6) Application processing. (i) No application will be considered
unless it has been submitted in an acceptable form during the period
specified by public notice. No applications submitted or demonstrations
made at any other time shall be accepted or considered.
(ii) Any application that, as of the submission deadline, either
does not identify the applicant seeking support as specified in the
public notice announcing application procedures or does not include
required certifications shall be denied.
(iii) An applicant may be afforded an opportunity to make minor
modifications to amend its application or correct defects noted by the
applicant, the Commission, the Administrator, or other parties. Minor
modifications include correcting typographical errors in the
application and supplying non-material information that was
inadvertently omitted or was not available at the time the application
was submitted.
(iv) Applications to which major modifications are made after the
deadline for submitting applications shall be denied. Major
modifications include, but are not limited to, any changes in the
ownership of the applicant that constitute an assignment or change of
control, or the identity of the applicant, or the certifications
required in the application.
(v) After receipt and review of the applications, a public notice
shall identify each winning bidder that may be authorized to receive
Remote Areas Fund support after the winning bidder submits a letter of
credit and an accompanying opinion letter as described in paragraph (d)
of this section, in a form acceptable to the Commission. Each such
winning bidder shall submit a letter of credit and accompanying opinion
letter as required by paragraph (d) of this section, in a form
acceptable to the Commission no later than the number of business days
provided by public notice.
(vi) After receipt of all necessary information, a public notice
will identify each winning bidder that is authorized to receive Remote
Areas Fund support.
(d) Letter of credit. Before being authorized to receive Remote
Areas Fund support, a winning bidder shall obtain an irrevocable
standby letter of credit which shall be acceptable in all respects to
the Commission.
(1) Value. Each recipient authorized to receive Remote Areas Fund
support shall maintain the standby letter of credit or multiple standby
letters of credit in an amount equal to at a minimum the amount of
Remote Areas Fund support that has been disbursed and that will be
disbursed in the coming year, until the Universal Service
Administrative Company has verified that the recipient met the final
service milestone as described in Sec. 54.310(c).
(i) Once the recipient has met its 60 percent service milestone, it
may obtain a new letter of credit or renew its existing letter of
credit so that it is valued at a minimum at 90 percent of the total
support amount already disbursed plus the amount that will be disbursed
in the coming year.
(ii) Once the recipient has met its 80 percent service milestone,
it may obtain a new letter of credit or renew its existing letter of
credit so that it is valued at a minimum at 80 percent of the total
support that has been disbursed plus the amount that will be disbursed
in the coming year.
(2) The bank issuing the letter of credit shall be acceptable to
the Commission. A bank that is acceptable to the Commission is:
(i) Any United States bank
(A) That is insured by the Federal Deposit Insurance Corporation,
and
(B) That has a bank safety rating issued by Weiss of B- or better;
or
[[Page 44454]]
(ii) CoBank, so long as it maintains assets that place it among the
100 largest United States Banks, determined on basis of total assets as
of the calendar year immediately preceding the issuance of the letter
of credit and it has a long-term unsecured credit rating issued by
Standard & Poor's of BBB- or better (or an equivalent rating from
another nationally recognized credit rating agency); or
(iii) The National Rural Utilities Cooperative Finance Corporation,
so long as it maintains assets that place it among the 100 largest
United States Banks, determined on basis of total assets as of the
calendar year immediately preceding the issuance of the letter of
credit and it has a long-term unsecured credit rating issued by
Standard & Poor's of BBB- or better (or an equivalent rating from
another nationally recognized credit rating agency); or
(iv) Any non-United States bank:
(A) That is among the 50 largest non-U.S. banks in the world,
determined on the basis of total assets as of the end of the calendar
year immediately preceding the issuance of the letter of credit
(determined on a U.S. dollar equivalent basis as of such date);
(B) Has a branch office in the District of Columbia or such other
branch office agreed to by the Commission;
(C) Has a long-term unsecured credit rating issued by a widely-
recognized credit rating agency that is equivalent to a BBB- or better
rating by Standard & Poor's; and
(D) Issues the letter of credit payable in United States dollars
(3) A winning bidder for Remote Areas Fund support shall provide
with its letter of credit an opinion letter from its legal counsel
clearly stating, subject only to customary assumptions, limitations,
and qualifications, that in a proceeding under Title 11 of the United
States Code, 11 U.S.C. 101 et seq. (the ``Bankruptcy Code''), the
bankruptcy court would not treat the letter of credit or proceeds of
the letter of credit as property of the winning bidder's bankruptcy
estate under section 541 of the Bankruptcy Code.
(4) Authorization to receive Remote Areas Fund support is
conditioned upon full and timely performance of all of the requirements
set forth in this section, and any additional terms and conditions upon
which the support was granted.
(i) Failure by a Remote Areas Fund support recipient to meet its
service milestones as required by Sec. 54.310 will trigger reporting
obligations and the withholding of support as described in Sec.
54.320(c). Failure to come into full compliance within 12 months will
trigger a recovery action by the Universal Service Administrative
Company. If the Remote Areas Fund recipient does not repay the
requisite amount of support within six months, the Universal Service
Administrative Company will be entitled to draw the entire amount of
the letter of credit and may disqualify the Remote Areas Fund support
recipient from the receipt of Remote Areas Fund support or additional
universal service support.
(ii) The default will be evidenced by a letter issued by the Chief
of the Wireline Competition Bureau or the Wireless Telecommunications
Bureau, or their respective designees, which letter, attached to a
standby letter of credit draw certificate, shall be sufficient for a
draw on the standby letter of credit for the entire amount of the
standby letter of credit.
Sec. 54.805 [Reserved]
Sec. 54.806 Remote Areas Fund reporting obligations.
Recipients of Remote Areas Fund support shall be subject to the
reporting obligations set forth in Sec. 54.313.
[FR Doc. 2016-14506 Filed 7-6-16; 8:45 am]
BILLING CODE 6712-01-P